Correlation Between Highway Holdings and Bt Brands

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

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

Diversification Opportunities for Highway Holdings and Bt Brands

0.07

Correlation Coefficient

Highway Holdings  Bt Brands

Significant diversification

The 3 months correlation between Highway and BTBD is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and Bt Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bt Brands and Highway 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 Highway Holdings Limited are associated (or correlated) with Bt Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bt Brands has no effect on the direction of Highway Holdings i.e., Highway Holdings and Bt Brands go up and down completely randomly.

Pair Corralation between Highway Holdings and Bt Brands

Given the investment horizon of 90 days Highway Holdings Limited is expected to generate 0.25 times more return on investment than Bt Brands. However, Highway Holdings Limited is 4.01 times less risky than Bt Brands. It trades about -0.01 of its potential returns per unit of risk. Bt Brands is currently generating about -0.01 per unit of risk. If you would invest  195.00  in Highway Holdings Limited on December 27, 2024 and sell it today you would lose (4.00) from holding Highway Holdings Limited or give up 2.05% of portfolio value over 90 days.

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

Highway Holdings Limited  vs.  Bt Brands

Highway Holdings

Risk-Adjusted Performance

Very Weak

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

Bt Brands

Risk-Adjusted Performance

Weak

Over the last 90 days Bt Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Bt Brands is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Highway Holdings and Bt Brands

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

The idea behind Highway Holdings Limited and Bt Brands 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.