Correlation Between Highway Holdings and MACOM Technology

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

Diversification Opportunities for Highway Holdings and MACOM Technology

-0.2

Correlation Coefficient

Highway Holdings  MACOM Technology

Good diversification

The 3 months correlation between Highway and MACOM is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and MACOM Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACOM Technology Sol 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 MACOM Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACOM Technology Sol has no effect on the direction of Highway Holdings i.e., Highway Holdings and MACOM Technology go up and down completely randomly.

Pair Corralation between Highway Holdings and MACOM Technology

Given the investment horizon of 90 days Highway Holdings is expected to generate 13.46 times less return on investment than MACOM Technology. In addition to that, Highway Holdings is 1.21 times more volatile than MACOM Technology Solutions. It trades about 0.0 of its total potential returns per unit of risk. MACOM Technology Solutions is currently generating about 0.08 per unit of volatility. If you would invest  6,589  in MACOM Technology Solutions on October 27, 2024 and sell it today you would earn a total of  8,014  from holding MACOM Technology Solutions or generate 121.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Highway Holdings Limited  vs.  MACOM Technology Solutions

Highway Holdings

Risk-Adjusted Performance

0 of 100

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.

MACOM Technology Sol

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, MACOM Technology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highway Holdings and MACOM Technology

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

The idea behind Highway Holdings Limited and MACOM Technology Solutions 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.