Correlation Between Information Technology and FarGlory Hotel

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

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

Diversification Opportunities for Information Technology and FarGlory Hotel

-0.27

Correlation Coefficient

Information Technology  FarGlory Hotel

Very good diversification

The 3 months correlation between Information and FarGlory is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and FarGlory Hotel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FarGlory Hotel and Information Technology 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 Information Technology Total are associated (or correlated) with FarGlory Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FarGlory Hotel has no effect on the direction of Information Technology i.e., Information Technology and FarGlory Hotel go up and down completely randomly.

Pair Corralation between Information Technology and FarGlory Hotel

Assuming the 90 days trading horizon Information Technology Total is expected to generate 1.8 times more return on investment than FarGlory Hotel. However, Information Technology is 1.8 times more volatile than FarGlory Hotel Co. It trades about 0.03 of its potential returns per unit of risk. FarGlory Hotel Co is currently generating about -0.09 per unit of risk. If you would invest  4,350  in Information Technology Total on September 4, 2024 and sell it today you would earn a total of  130.00  from holding Information Technology Total or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Information Technology Total  vs.  FarGlory Hotel Co

Information Technology

Risk-Adjusted Performance

2 of 100

Weak

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

FarGlory Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FarGlory Hotel Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Information Technology and FarGlory Hotel

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

The idea behind Information Technology Total and FarGlory Hotel Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.