Correlation Between Ace Global and Highway Holdings

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

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

Diversification Opportunities for Ace Global and Highway Holdings

0.76

Correlation Coefficient

Ace Global  Highway Holdings

Poor diversification

The 3 months correlation between Ace and Highway is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ace Global Business and Highway Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highway Holdings and Ace Global 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 Ace Global Business 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 Ace Global i.e., Ace Global and Highway Holdings go up and down completely randomly.

Pair Corralation between Ace Global and Highway Holdings

Given the investment horizon of 90 days Ace Global is expected to generate 1.22 times less return on investment than Highway Holdings. But when comparing it to its historical volatility, Ace Global Business is 4.98 times less risky than Highway Holdings. It trades about 0.17 of its potential returns per unit of risk. Highway Holdings Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  207.00  in Highway Holdings Limited on February 2, 2024 and sell it today you would earn a total of  3.00  from holding Highway Holdings Limited or generate 1.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	54.55%
Values	Daily Returns

Ace Global Business  vs.  Highway Holdings Limited

Ace Global Business

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Ace Global Business has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Ace Global is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 healthy technical indicators, Highway Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ace Global and Highway Holdings

The main advantage of trading using opposite Ace Global and Highway Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ace Global 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 Ace Global Business 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.