Correlation Between Honeywell International and Alliance Recovery
Can any of the company-specific risk be diversified away by investing in both Honeywell International and Alliance Recovery at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Honeywell International and Alliance Recovery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honeywell International and Alliance Recovery, you can compare the effects of market volatilities on Honeywell International and Alliance Recovery and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Honeywell International with a short position of Alliance Recovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Alliance Recovery.
Diversification Opportunities for Honeywell International and Alliance Recovery
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Honeywell and Alliance is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Alliance Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Recovery and Honeywell International is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Honeywell International are associated (or correlated) with Alliance Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Recovery has no effect on the direction of Honeywell International i.e., Honeywell International and Alliance Recovery go up and down completely randomly.
Pair Corralation between Honeywell International and Alliance Recovery
Considering the 90-day investment horizon Honeywell International is expected to generate 0.17 times more return on investment than Alliance Recovery. However, Honeywell International is 5.78 times less risky than Alliance Recovery. It trades about 0.05 of its potential returns per unit of risk. Alliance Recovery is currently generating about -0.03 per unit of risk. If you would invest 19,400 in Honeywell International on September 12, 2024 and sell it today you would earn a total of 3,508 from holding Honeywell International or generate 18.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honeywell International vs. Alliance Recovery
Performance |
| Timeline |
| Honeywell International |
| Alliance Recovery |
Honeywell International and Alliance Recovery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honeywell International and Alliance Recovery
The main advantage of trading using opposite Honeywell International and Alliance Recovery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, Alliance Recovery can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alliance Recovery will offset losses from the drop in Alliance Recovery's long position.The idea behind Honeywell International and Alliance Recovery pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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