Correlation Between Canadian National and Honeywell International

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

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

Diversification Opportunities for Canadian National and Honeywell International

-0.6

Correlation Coefficient

Canadian National  Honeywell International

Excellent diversification

The 3 months correlation between Canadian and Honeywell is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Canadian National 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 Canadian National Railway 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 Canadian National i.e., Canadian National and Honeywell International go up and down completely randomly.

Pair Corralation between Canadian National and Honeywell International

Considering the 90-day investment horizon Canadian National Railway is expected to under-perform the Honeywell International. But the stock apears to be less risky and, when comparing its historical volatility, Canadian National Railway is 1.46 times less risky than Honeywell International. The stock trades about -0.29 of its potential returns per unit of risk. The Honeywell International is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  23,040  in Honeywell International on September 27, 2024 and sell it today you would lose (150.00) from holding Honeywell International or give up 0.65% of portfolio value over 90 days.

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

Canadian National Railway  vs.  Honeywell International

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Honeywell International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Honeywell International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian National and Honeywell International

The main advantage of trading using opposite Canadian National and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National 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 Canadian National Railway 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.