Correlation Between Action Construction and Lemon Tree

Can any of the company-specific risk be diversified away by investing in both Action Construction and Lemon Tree 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 Action Construction and Lemon Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Action Construction Equipment and Lemon Tree Hotels, you can compare the effects of market volatilities on Action Construction and Lemon Tree 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 Action Construction with a short position of Lemon Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Action Construction and Lemon Tree.

Diversification Opportunities for Action Construction and Lemon Tree

0.01

Correlation Coefficient

Action Construction  Lemon Tree

Significant diversification

The 3 months correlation between Action and Lemon is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and Action Construction 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 Action Construction Equipment are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of Action Construction i.e., Action Construction and Lemon Tree go up and down completely randomly.

Pair Corralation between Action Construction and Lemon Tree

Assuming the 90 days trading horizon Action Construction Equipment is expected to generate 1.63 times more return on investment than Lemon Tree. However, Action Construction is 1.63 times more volatile than Lemon Tree Hotels. It trades about 0.02 of its potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.0 per unit of risk. If you would invest  127,185  in Action Construction Equipment on August 31, 2024 and sell it today you would earn a total of  1,580  from holding Action Construction Equipment or generate 1.24% return on investment over 90 days.

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

Action Construction Equipment  vs.  Lemon Tree Hotels

Action Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Action Construction is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Lemon Tree Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lemon Tree Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Lemon Tree is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Action Construction and Lemon Tree

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

The idea behind Action Construction Equipment and Lemon Tree Hotels 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.