Correlation Between Highway Holdings and CompoSecure

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

Diversification Opportunities for Highway Holdings and CompoSecure

0.06

Correlation Coefficient

Highway Holdings  CompoSecure

Significant diversification

The 3 months correlation between Highway and CompoSecure is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and CompoSecure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompoSecure 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 CompoSecure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompoSecure has no effect on the direction of Highway Holdings i.e., Highway Holdings and CompoSecure go up and down completely randomly.

Pair Corralation between Highway Holdings and CompoSecure

Given the investment horizon of 90 days Highway Holdings Limited is expected to generate 0.21 times more return on investment than CompoSecure. However, Highway Holdings Limited is 4.81 times less risky than CompoSecure. It trades about 0.0 of its potential returns per unit of risk. CompoSecure is currently generating about -0.01 per unit of risk. If you would invest  191.00  in Highway Holdings Limited on December 23, 2024 and sell it today you would lose (1.00) from holding Highway Holdings Limited or give up 0.52% 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.  CompoSecure

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.

CompoSecure

Risk-Adjusted Performance

Very Weak

Over the last 90 days CompoSecure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CompoSecure is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Highway Holdings and CompoSecure

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

The idea behind Highway Holdings Limited and CompoSecure 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..