Correlation Between Itochu Corp and Honeywell International

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

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

Diversification Opportunities for Itochu Corp and Honeywell International

0.52

Correlation Coefficient

Itochu Corp  Honeywell International

Very weak diversification

The 3 months correlation between Itochu and Honeywell is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Itochu Corp ADR and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Itochu Corp 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 Itochu Corp ADR 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 Itochu Corp i.e., Itochu Corp and Honeywell International go up and down completely randomly.

Pair Corralation between Itochu Corp and Honeywell International

Assuming the 90 days horizon Itochu Corp is expected to generate 4.54 times less return on investment than Honeywell International. In addition to that, Itochu Corp is 1.93 times more volatile than Honeywell International. It trades about 0.04 of its total potential returns per unit of risk. Honeywell International is currently generating about 0.38 per unit of volatility. If you would invest  19,918  in Honeywell International on March 28, 2024 and sell it today you would earn a total of  1,425  from holding Honeywell International or generate 7.15% return on investment over 90 days.

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

Itochu Corp ADR  vs.  Honeywell International

Itochu Corp ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Itochu Corp ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Itochu Corp may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Honeywell International

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 6 (%) 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 Itochu Corp and Honeywell International

The main advantage of trading using opposite Itochu Corp and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itochu Corp 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 Itochu Corp ADR 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.