Correlation Between Honeywell International and Amazon

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

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

Diversification Opportunities for Honeywell International and Amazon

0.83

Correlation Coefficient

Honeywell International  Amazon

Very poor diversification

The 3 months correlation between Honeywell and Amazon is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Honeywell International i.e., Honeywell International and Amazon go up and down completely randomly.

Pair Corralation between Honeywell International and Amazon

Assuming the 90 days trading horizon Honeywell International is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell International is 1.85 times less risky than Amazon. The stock trades about -0.03 of its potential returns per unit of risk. The Amazon Inc is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  410,594  in Amazon Inc on September 17, 2024 and sell it today you would earn a total of  47,692  from holding Amazon Inc or generate 11.62% 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.  Amazon Inc

Honeywell International

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 13 (%) 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.

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Amazon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and Amazon

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

The idea behind Honeywell International and Amazon Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.