Correlation Between Highway Holdings and Transocean

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

Diversification Opportunities for Highway Holdings and Transocean

-0.15

Correlation Coefficient

Highway Holdings  Transocean

Good diversification

The 3 months correlation between Highway and Transocean is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Highway Holdings i.e., Highway Holdings and Transocean go up and down completely randomly.

Pair Corralation between Highway Holdings and Transocean

Given the investment horizon of 90 days Highway Holdings Limited is expected to generate 1.43 times more return on investment than Transocean. However, Highway Holdings is 1.43 times more volatile than Transocean. It trades about 0.04 of its potential returns per unit of risk. Transocean is currently generating about 0.01 per unit of risk. If you would invest  183.00  in Highway Holdings Limited on September 13, 2024 and sell it today you would earn a total of  8.00  from holding Highway Holdings Limited or generate 4.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Highway Holdings Limited  vs.  Transocean

Highway Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highway Holdings Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Highway Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Transocean is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Highway Holdings and Transocean

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

The idea behind Highway Holdings Limited and Transocean 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.