Correlation Between HE Equipment and Fortress Transp

Can any of the company-specific risk be diversified away by investing in both HE Equipment and Fortress Transp 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 HE Equipment and Fortress Transp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HE Equipment Services and Fortress Transp Infra, you can compare the effects of market volatilities on HE Equipment and Fortress Transp 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 HE Equipment with a short position of Fortress Transp. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and Fortress Transp.

Diversification Opportunities for HE Equipment and Fortress Transp

0.92

Correlation Coefficient

HE Equipment  Fortress Transp

Almost no diversification

The 3 months correlation between HEES and Fortress is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Fortress Transp Infra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortress Transp Infra and HE Equipment 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 HE Equipment Services are associated (or correlated) with Fortress Transp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortress Transp Infra has no effect on the direction of HE Equipment i.e., HE Equipment and Fortress Transp go up and down completely randomly.

Pair Corralation between HE Equipment and Fortress Transp

Given the investment horizon of 90 days HE Equipment is expected to generate 1.2 times less return on investment than Fortress Transp. But when comparing it to its historical volatility, HE Equipment Services is 1.05 times less risky than Fortress Transp. It trades about 0.19 of its potential returns per unit of risk. Fortress Transp Infra is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  11,771  in Fortress Transp Infra on August 31, 2024 and sell it today you would earn a total of  4,761  from holding Fortress Transp Infra or generate 40.45% return on investment over 90 days.

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

HE Equipment Services  vs.  Fortress Transp Infra

HE Equipment Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fortress Transp Infra

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fortress Transp Infra are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Fortress Transp demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HE Equipment and Fortress Transp

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

The idea behind HE Equipment Services and Fortress Transp Infra 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.