Correlation Between Biglari Holdings and HE Equipment

Can any of the company-specific risk be diversified away by investing in both Biglari Holdings and HE Equipment 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 Biglari Holdings and HE Equipment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Biglari Holdings and HE Equipment Services, you can compare the effects of market volatilities on Biglari Holdings and HE Equipment 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 Biglari Holdings with a short position of HE Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biglari Holdings and HE Equipment.

Diversification Opportunities for Biglari Holdings and HE Equipment

-0.53

Correlation Coefficient

Biglari Holdings  HE Equipment

Excellent diversification

The 3 months correlation between Biglari and HEES is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Biglari Holdings and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services and Biglari Holdings 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 Biglari Holdings are associated (or correlated) with HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Biglari Holdings i.e., Biglari Holdings and HE Equipment go up and down completely randomly.

Pair Corralation between Biglari Holdings and HE Equipment

Allowing for the 90-day total investment horizon Biglari Holdings is expected to under-perform the HE Equipment. But the stock apears to be less risky and, when comparing its historical volatility, Biglari Holdings is 5.5 times less risky than HE Equipment. The stock trades about -0.13 of its potential returns per unit of risk. The HE Equipment Services is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,021  in HE Equipment Services on December 26, 2024 and sell it today you would earn a total of  4,552  from holding HE Equipment Services or generate 90.66% return on investment over 90 days.

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

Biglari Holdings  vs.  HE Equipment Services

Biglari Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biglari Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

HE Equipment Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biglari Holdings and HE Equipment

The main advantage of trading using opposite Biglari Holdings and HE Equipment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biglari Holdings position performs unexpectedly, HE Equipment 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 HE Equipment will offset losses from the drop in HE Equipment's long position.

The idea behind Biglari Holdings and HE Equipment Services 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.