Correlation Between Honeywell International and Trinity Industries
Can any of the company-specific risk be diversified away by investing in both Honeywell International and Trinity Industries 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 Trinity Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honeywell International and Trinity Industries, you can compare the effects of market volatilities on Honeywell International and Trinity Industries 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 Trinity Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Trinity Industries.
Diversification Opportunities for Honeywell International and Trinity Industries
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Honeywell and Trinity is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Trinity Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Industries 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 Trinity Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Industries has no effect on the direction of Honeywell International i.e., Honeywell International and Trinity Industries go up and down completely randomly.
Pair Corralation between Honeywell International and Trinity Industries
Considering the 90-day investment horizon Honeywell International is expected to generate 2.74 times less return on investment than Trinity Industries. But when comparing it to its historical volatility, Honeywell International is 2.0 times less risky than Trinity Industries. It trades about 0.08 of its potential returns per unit of risk. Trinity Industries is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,469 in Trinity Industries on August 27, 2024 and sell it today you would earn a total of 1,286 from holding Trinity Industries or generate 52.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honeywell International vs. Trinity Industries
Performance |
| Timeline |
| Honeywell International |
| Trinity Industries |
Honeywell International and Trinity Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honeywell International and Trinity Industries
The main advantage of trading using opposite Honeywell International and Trinity Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, Trinity Industries 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 Trinity Industries will offset losses from the drop in Trinity Industries' long position.The idea behind Honeywell International and Trinity Industries 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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