Correlation Between Honeywell International and Hitachi

Can any of the company-specific risk be diversified away by investing in both Honeywell International and Hitachi 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 Hitachi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Honeywell International and Hitachi, you can compare the effects of market volatilities on Honeywell International and Hitachi 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 Hitachi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Hitachi.

Diversification Opportunities for Honeywell International and Hitachi

0.25

Correlation Coefficient

Honeywell International  Hitachi

Modest diversification

The 3 months correlation between Honeywell and Hitachi is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Hitachi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi 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 Hitachi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi has no effect on the direction of Honeywell International i.e., Honeywell International and Hitachi go up and down completely randomly.

Pair Corralation between Honeywell International and Hitachi

Assuming the 90 days trading horizon Honeywell International is expected to generate 0.6 times more return on investment than Hitachi. However, Honeywell International is 1.66 times less risky than Hitachi. It trades about 0.21 of its potential returns per unit of risk. Hitachi is currently generating about 0.02 per unit of risk. If you would invest  18,220  in Honeywell International on September 23, 2024 and sell it today you would earn a total of  3,725  from holding Honeywell International or generate 20.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Honeywell International  vs.  Hitachi

Honeywell International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Honeywell International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Hitachi

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hitachi is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Honeywell International and Hitachi

The main advantage of trading using opposite Honeywell International and Hitachi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, Hitachi 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 Hitachi will offset losses from the drop in Hitachi's long position.

The idea behind Honeywell International and Hitachi 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.