Correlation Between Highway Holdings and Babcock Wilcox

Can any of the company-specific risk be diversified away by investing in both Highway Holdings and Babcock Wilcox 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 Babcock Wilcox 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 Babcock Wilcox Enterprises, you can compare the effects of market volatilities on Highway Holdings and Babcock Wilcox 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 Babcock Wilcox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highway Holdings and Babcock Wilcox.

Diversification Opportunities for Highway Holdings and Babcock Wilcox

-0.41

Correlation Coefficient

Highway Holdings  Babcock Wilcox

Very good diversification

The 3 months correlation between Highway and Babcock is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Highway Holdings i.e., Highway Holdings and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Highway Holdings and Babcock Wilcox

Given the investment horizon of 90 days Highway Holdings Limited is expected to under-perform the Babcock Wilcox. But the stock apears to be less risky and, when comparing its historical volatility, Highway Holdings Limited is 2.25 times less risky than Babcock Wilcox. The stock trades about -0.19 of its potential returns per unit of risk. The Babcock Wilcox Enterprises is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,036  in Babcock Wilcox Enterprises on December 2, 2024 and sell it today you would earn a total of  39.00  from holding Babcock Wilcox Enterprises or generate 1.92% return on investment over 90 days.

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

Highway Holdings Limited  vs.  Babcock Wilcox Enterprises

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.

Babcock Wilcox Enter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Highway Holdings and Babcock Wilcox

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

The idea behind Highway Holdings Limited and Babcock Wilcox Enterprises 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.