Correlation Between Innovative Industrial and Highway Holdings

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

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

Diversification Opportunities for Innovative Industrial and Highway Holdings

0.09

Correlation Coefficient

Innovative Industrial  Highway Holdings

Significant diversification

The 3 months correlation between Innovative and Highway is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Innovative Industrial Properti and Highway Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highway Holdings and Innovative Industrial 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 Innovative Industrial Properties are associated (or correlated) with Highway Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highway Holdings has no effect on the direction of Innovative Industrial i.e., Innovative Industrial and Highway Holdings go up and down completely randomly.

Pair Corralation between Innovative Industrial and Highway Holdings

Assuming the 90 days trading horizon Innovative Industrial Properties is expected to under-perform the Highway Holdings. But the preferred stock apears to be less risky and, when comparing its historical volatility, Innovative Industrial Properties is 5.66 times less risky than Highway Holdings. The preferred stock trades about -0.08 of its potential returns per unit of risk. The Highway Holdings Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  180.00  in Highway Holdings Limited on October 5, 2024 and sell it today you would earn a total of  21.00  from holding Highway Holdings Limited or generate 11.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Innovative Industrial Properti  vs.  Highway Holdings Limited

Innovative Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Highway Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highway Holdings Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Highway Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innovative Industrial and Highway Holdings

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

The idea behind Innovative Industrial Properties and Highway Holdings Limited 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.