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

-0.11

Correlation Coefficient

Honeywell International  Hitachi

Good diversification

The 3 months correlation between Honeywell and Hitachi is -0.11. 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

Considering the 90-day investment horizon Honeywell International is expected to generate 4.36 times less return on investment than Hitachi. But when comparing it to its historical volatility, Honeywell International is 1.67 times less risky than Hitachi. It trades about 0.04 of its potential returns per unit of risk. Hitachi is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,459  in Hitachi on January 30, 2024 and sell it today you would earn a total of  4,349  from holding Hitachi or generate 97.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.49%
Values	Daily Returns

Honeywell International  vs.  Hitachi

Honeywell International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Honeywell International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Honeywell International is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Hitachi

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward indicators, Hitachi reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.