Correlation Between Asian Hotels and Royal Orchid

Can any of the company-specific risk be diversified away by investing in both Asian Hotels and Royal Orchid 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 Asian Hotels and Royal Orchid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Asian Hotels Limited and Royal Orchid Hotels, you can compare the effects of market volatilities on Asian Hotels and Royal Orchid 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 Asian Hotels with a short position of Royal Orchid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asian Hotels and Royal Orchid.

Diversification Opportunities for Asian Hotels and Royal Orchid

-0.22

Correlation Coefficient

Asian Hotels  Royal Orchid

Very good diversification

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

Pair Corralation between Asian Hotels and Royal Orchid

Assuming the 90 days trading horizon Asian Hotels Limited is expected to generate 1.47 times more return on investment than Royal Orchid. However, Asian Hotels is 1.47 times more volatile than Royal Orchid Hotels. It trades about 0.09 of its potential returns per unit of risk. Royal Orchid Hotels is currently generating about -0.08 per unit of risk. If you would invest  18,332  in Asian Hotels Limited on September 4, 2024 and sell it today you would earn a total of  2,672  from holding Asian Hotels Limited or generate 14.58% return on investment over 90 days.

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

Asian Hotels Limited  vs.  Royal Orchid Hotels

Asian Hotels Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Asian Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Royal Orchid Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Orchid Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Asian Hotels and Royal Orchid

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

The idea behind Asian Hotels Limited and Royal Orchid 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.