Correlation Between First Hotel and Super Dragon

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

Diversification Opportunities for First Hotel and Super Dragon

0.22

Correlation Coefficient

First Hotel  Super Dragon

Modest diversification

The 3 months correlation between First and Super is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding First Hotel Co and Super Dragon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Super Dragon Technology 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 Super Dragon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Super Dragon Technology has no effect on the direction of First Hotel i.e., First Hotel and Super Dragon go up and down completely randomly.

Pair Corralation between First Hotel and Super Dragon

Assuming the 90 days trading horizon First Hotel Co is expected to generate 0.33 times more return on investment than Super Dragon. However, First Hotel Co is 3.06 times less risky than Super Dragon. It trades about -0.07 of its potential returns per unit of risk. Super Dragon Technology is currently generating about -0.12 per unit of risk. If you would invest  1,525  in First Hotel Co on September 3, 2024 and sell it today you would lose (45.00) from holding First Hotel Co or give up 2.95% of portfolio value over 90 days.

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

First Hotel Co  vs.  Super Dragon Technology

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.

Super Dragon Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Super Dragon Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with First Hotel and Super Dragon

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

The idea behind First Hotel Co and Super Dragon Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.