Correlation Between Vanguard World and Honeywell International

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

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

Diversification Opportunities for Vanguard World and Honeywell International

-0.08

Correlation Coefficient

Vanguard World  Honeywell International

Good diversification

The 3 months correlation between Vanguard and Honeywell is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard World and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Vanguard World 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 Vanguard World 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 Vanguard World i.e., Vanguard World and Honeywell International go up and down completely randomly.

Pair Corralation between Vanguard World and Honeywell International

Assuming the 90 days trading horizon Vanguard World is expected to under-perform the Honeywell International. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard World is 1.13 times less risky than Honeywell International. The etf trades about -0.25 of its potential returns per unit of risk. The Honeywell International is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  467,900  in Honeywell International on September 25, 2024 and sell it today you would lose (7,900) from holding Honeywell International or give up 1.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard World  vs.  Honeywell International

Vanguard World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard World is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Vanguard World and Honeywell International

The main advantage of trading using opposite Vanguard World and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard World 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 Vanguard World 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.