Correlation Between IShares Trust and Honeywell International

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

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

Diversification Opportunities for IShares Trust and Honeywell International

0.43

Correlation Coefficient

IShares Trust  Honeywell International

Very weak diversification

The 3 months correlation between IShares and Honeywell is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and IShares Trust 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 iShares Trust are associated (or correlated) with Honeywell International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honeywell International has no effect on the direction of IShares Trust i.e., IShares Trust and Honeywell International go up and down completely randomly.

Pair Corralation between IShares Trust and Honeywell International

Assuming the 90 days trading horizon IShares Trust is expected to generate 1.07 times less return on investment than Honeywell International. But when comparing it to its historical volatility, iShares Trust is 1.14 times less risky than Honeywell International. It trades about 0.09 of its potential returns per unit of risk. Honeywell International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  334,300  in Honeywell International on September 28, 2024 and sell it today you would earn a total of  129,300  from holding Honeywell International or generate 38.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	76.78%
Values	Daily Returns

iShares Trust   vs.  Honeywell International

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Honeywell International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Honeywell International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Trust and Honeywell International

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

The idea behind iShares Trust and Honeywell International 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.