Correlation Between Highway Holdings and DR Horton

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

Diversification Opportunities for Highway Holdings and DR Horton

-0.34

Correlation Coefficient

Highway Holdings  DR Horton

Very good diversification

The 3 months correlation between Highway and DHI is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Highway Holdings i.e., Highway Holdings and DR Horton go up and down completely randomly.

Pair Corralation between Highway Holdings and DR Horton

Given the investment horizon of 90 days Highway Holdings is expected to generate 2.02 times less return on investment than DR Horton. But when comparing it to its historical volatility, Highway Holdings Limited is 1.59 times less risky than DR Horton. It trades about 0.11 of its potential returns per unit of risk. DR Horton is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  14,277  in DR Horton on February 21, 2024 and sell it today you would earn a total of  873.00  from holding DR Horton or generate 6.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Highway Holdings Limited  vs.  DR Horton

Highway Holdings

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highway Holdings Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical indicators, Highway Holdings may actually be approaching a critical reversion point that can send shares even higher in June 2024.

DR Horton

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DR Horton are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, DR Horton may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Highway Holdings and DR Horton

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

The idea behind Highway Holdings Limited and DR Horton 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.