Correlation Between First Hotel and New Palace

Can any of the company-specific risk be diversified away by investing in both First Hotel and New Palace 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 First Hotel and New Palace into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Hotel Co and New Palace International, you can compare the effects of market volatilities on First Hotel and New Palace 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 First Hotel with a short position of New Palace. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Hotel and New Palace.

Diversification Opportunities for First Hotel and New Palace

0.03

Correlation Coefficient

First Hotel  New Palace

Significant diversification

The 3 months correlation between First and New is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding First Hotel Co and New Palace International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Palace International and First Hotel 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 First Hotel Co are associated (or correlated) with New Palace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Palace International has no effect on the direction of First Hotel i.e., First Hotel and New Palace go up and down completely randomly.

Pair Corralation between First Hotel and New Palace

Assuming the 90 days trading horizon First Hotel Co is expected to generate 0.51 times more return on investment than New Palace. However, First Hotel Co is 1.95 times less risky than New Palace. It trades about -0.18 of its potential returns per unit of risk. New Palace International is currently generating about -0.13 per unit of risk. If you would invest  1,515  in First Hotel Co on September 3, 2024 and sell it today you would lose (35.00) from holding First Hotel Co or give up 2.31% of portfolio value over 90 days.

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

First Hotel Co  vs.  New Palace International

First Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Hotel Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Hotel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

New Palace International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Palace International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, New Palace is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Hotel and New Palace

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

The idea behind First Hotel Co and New Palace International 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.