Correlation Between Associated Alcohols and Lemon Tree

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

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

Diversification Opportunities for Associated Alcohols and Lemon Tree

0.92

Correlation Coefficient

Associated Alcohols  Lemon Tree

Almost no diversification

The 3 months correlation between Associated and Lemon is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Associated Alcohols Breweries 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 Associated Alcohols 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 Associated Alcohols Breweries 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 Associated Alcohols i.e., Associated Alcohols and Lemon Tree go up and down completely randomly.

Pair Corralation between Associated Alcohols and Lemon Tree

Assuming the 90 days trading horizon Associated Alcohols is expected to generate 1.43 times less return on investment than Lemon Tree. In addition to that, Associated Alcohols is 1.47 times more volatile than Lemon Tree Hotels. It trades about 0.09 of its total potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.2 per unit of volatility. If you would invest  12,601  in Lemon Tree Hotels on September 20, 2024 and sell it today you would earn a total of  2,878  from holding Lemon Tree Hotels or generate 22.84% return on investment over 90 days.

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

Associated Alcohols Breweries  vs.  Lemon Tree Hotels

Associated Alcohols

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Associated Alcohols Breweries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Associated Alcohols reported solid returns over the last few months and may actually be approaching a breakup point.

Lemon Tree Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Associated Alcohols and Lemon Tree

The main advantage of trading using opposite Associated Alcohols and Lemon Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated Alcohols 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 Associated Alcohols Breweries 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 CEOs Directory module to screen CEOs from public companies around the world.