Correlation Between Highway Holdings and Primoris Services

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

Diversification Opportunities for Highway Holdings and Primoris Services

0.82

Correlation Coefficient

Highway Holdings  Primoris Services

Very poor diversification

The 3 months correlation between Highway and Primoris is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and Primoris Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primoris Services 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 Primoris Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primoris Services has no effect on the direction of Highway Holdings i.e., Highway Holdings and Primoris Services go up and down completely randomly.

Pair Corralation between Highway Holdings and Primoris Services

Given the investment horizon of 90 days Highway Holdings is expected to generate 4.62 times less return on investment than Primoris Services. But when comparing it to its historical volatility, Highway Holdings Limited is 1.2 times less risky than Primoris Services. It trades about 0.04 of its potential returns per unit of risk. Primoris Services is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,225  in Primoris Services on February 2, 2024 and sell it today you would earn a total of  351.00  from holding Primoris Services or generate 8.31% return on investment over 90 days.

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

Highway Holdings Limited  vs.  Primoris Services

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.

Primoris Services

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Primoris Services are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Primoris Services displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highway Holdings and Primoris Services

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

The idea behind Highway Holdings Limited and Primoris Services 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.

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 the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.