Correlation Between Honeywell International and General Electric

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

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

Diversification Opportunities for Honeywell International and General Electric

0.22

Correlation Coefficient

Honeywell International  General Electric

Modest diversification

The 3 months correlation between Honeywell and General is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Honeywell International i.e., Honeywell International and General Electric go up and down completely randomly.

Pair Corralation between Honeywell International and General Electric

Assuming the 90 days trading horizon Honeywell International is expected to generate 0.93 times more return on investment than General Electric. However, Honeywell International is 1.08 times less risky than General Electric. It trades about 0.19 of its potential returns per unit of risk. General Electric is currently generating about -0.01 per unit of risk. If you would invest  110,908  in Honeywell International on September 23, 2024 and sell it today you would earn a total of  28,638  from holding Honeywell International or generate 25.82% 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.  General Electric

Honeywell International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Honeywell International sustained solid returns over the last few months and may actually be approaching a breakup point.

General Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, General Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Honeywell International and General Electric

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

The idea behind Honeywell International and General Electric 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.