Correlation Between Applied Industrial and Highway Holdings

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

Diversification Opportunities for Applied Industrial and Highway Holdings

0.28
  Correlation Coefficient

Modest diversification

The 3 months correlation between Applied and Highway is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and Highway Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highway Holdings and Applied 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 Applied Industrial Technologies 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 Applied Industrial i.e., Applied Industrial and Highway Holdings go up and down completely randomly.

Pair Corralation between Applied Industrial and Highway Holdings

Considering the 90-day investment horizon Applied Industrial is expected to generate 1.13 times less return on investment than Highway Holdings. In addition to that, Applied Industrial is 1.14 times more volatile than Highway Holdings Limited. It trades about 0.17 of its total potential returns per unit of risk. Highway Holdings Limited is currently generating about 0.22 per unit of volatility. If you would invest  210.00  in Highway Holdings Limited on October 30, 2022 and sell it today you would earn a total of  26.00  from holding Highway Holdings Limited or generate 12.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Applied Industrial Technologie  vs.  Highway Holdings Limited

 Performance (%) 
       Timeline  
Applied Industrial 
Applied Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Applied Industrial Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Applied Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Applied Price Channel

Highway Holdings 
Highway Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Highway Holdings Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical indicators, Highway Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Highway Price Channel

Applied Industrial and Highway Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Applied Industrial and Highway Holdings

The main advantage of trading using opposite Applied Industrial and Highway Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied 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.
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The idea behind Applied Industrial Technologies 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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Check out your portfolio center. 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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