Correlation Between 3M and Honeywell International

Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Honeywell International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and Honeywell International, you can compare the effects of market volatilities on 3M 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 3M with a short position of Honeywell International. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Honeywell International.

Diversification Opportunities for 3M and Honeywell International

-0.06

Correlation Coefficient

3M  Honeywell International

Good diversification

The 3 months correlation between 3M and Honeywell is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and 3M 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 3M Company 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 3M i.e., 3M and Honeywell International go up and down completely randomly.

Pair Corralation between 3M and Honeywell International

Considering the 90-day investment horizon 3M Company is expected to under-perform the Honeywell International. In addition to that, 3M is 1.45 times more volatile than Honeywell International. It trades about 0.0 of its total potential returns per unit of risk. Honeywell International is currently generating about 0.02 per unit of volatility. If you would invest  18,349  in Honeywell International on February 14, 2024 and sell it today you would earn a total of  2,031  from holding Honeywell International or generate 11.07% return on investment over 90 days.

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

3M Company  vs.  Honeywell International

3M Company

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, 3M displayed solid returns over the last few months and may actually be approaching a breakup point.

Honeywell International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with 3M and Honeywell International

The main advantage of trading using opposite 3M and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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 3M Company 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.