Correlation Between Honeywell International and Canadian National
Can any of the company-specific risk be diversified away by investing in both Honeywell International and Canadian National 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 Canadian National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honeywell International and Canadian National Railway, you can compare the effects of market volatilities on Honeywell International and Canadian National 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 Canadian National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Canadian National.
Diversification Opportunities for Honeywell International and Canadian National
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Honeywell and Canadian is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway 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 Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Honeywell International i.e., Honeywell International and Canadian National go up and down completely randomly.
Pair Corralation between Honeywell International and Canadian National
Considering the 90-day investment horizon Honeywell International is expected to under-perform the Canadian National. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell International is 1.04 times less risky than Canadian National. The stock trades about -0.03 of its potential returns per unit of risk. The Canadian National Railway is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 10,186 in Canadian National Railway on November 3, 2024 and sell it today you would earn a total of 265.00 from holding Canadian National Railway or generate 2.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Honeywell International vs. Canadian National Railway
Performance |
| Timeline |
| Honeywell International |
| Canadian National Railway |
Honeywell International and Canadian National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honeywell International and Canadian National
The main advantage of trading using opposite Honeywell International and Canadian National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, Canadian National 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 Canadian National will offset losses from the drop in Canadian National's long position.The idea behind Honeywell International and Canadian National Railway 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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