Correlation Between Highway Holdings and FACT II

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

Diversification Opportunities for Highway Holdings and FACT II

0.22

Correlation Coefficient

Highway Holdings  FACT II

Modest diversification

The 3 months correlation between Highway and FACT is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and FACT II Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FACT II Acquisition 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 FACT II. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FACT II Acquisition has no effect on the direction of Highway Holdings i.e., Highway Holdings and FACT II go up and down completely randomly.

Pair Corralation between Highway Holdings and FACT II

Given the investment horizon of 90 days Highway Holdings Limited is expected to under-perform the FACT II. But the stock apears to be less risky and, when comparing its historical volatility, Highway Holdings Limited is 119.59 times less risky than FACT II. The stock trades about -0.04 of its potential returns per unit of risk. The FACT II Acquisition is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.00  in FACT II Acquisition on December 19, 2024 and sell it today you would earn a total of  20.00  from holding FACT II Acquisition or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	50.0%
Values	Daily Returns

Highway Holdings Limited  vs.  FACT II Acquisition

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.

FACT II Acquisition

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FACT II Acquisition are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, FACT II showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highway Holdings and FACT II

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

The idea behind Highway Holdings Limited and FACT II Acquisition 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.