Correlation Between Chalet Hotels and Southern Petrochemicals

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

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

Diversification Opportunities for Chalet Hotels and Southern Petrochemicals

0.1

Correlation Coefficient

Chalet Hotels  Southern Petrochemicals

Average diversification

The 3 months correlation between Chalet and Southern is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Chalet Hotels Limited and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals and Chalet 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 Chalet Hotels Limited are associated (or correlated) with Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Chalet Hotels i.e., Chalet Hotels and Southern Petrochemicals go up and down completely randomly.

Pair Corralation between Chalet Hotels and Southern Petrochemicals

Assuming the 90 days trading horizon Chalet Hotels Limited is expected to generate 1.19 times more return on investment than Southern Petrochemicals. However, Chalet Hotels is 1.19 times more volatile than Southern Petrochemicals Industries. It trades about 0.1 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about -0.06 per unit of risk. If you would invest  88,705  in Chalet Hotels Limited on September 20, 2024 and sell it today you would earn a total of  12,050  from holding Chalet Hotels Limited or generate 13.58% return on investment over 90 days.

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

Chalet Hotels Limited  vs.  Southern Petrochemicals Indust

Chalet Hotels Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chalet Hotels Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Chalet Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Chalet Hotels and Southern Petrochemicals

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

The idea behind Chalet Hotels Limited and Southern Petrochemicals Industries 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.