Correlation Between City Steel and Grande Hospitality

Can any of the company-specific risk be diversified away by investing in both City Steel and Grande Hospitality 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 City Steel and Grande Hospitality into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between City Steel Public and Grande Hospitality Real, you can compare the effects of market volatilities on City Steel and Grande Hospitality 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 City Steel with a short position of Grande Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Steel and Grande Hospitality.

Diversification Opportunities for City Steel and Grande Hospitality

0.15

Correlation Coefficient

City Steel  Grande Hospitality

Average diversification

The 3 months correlation between City and Grande is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding City Steel Public and Grande Hospitality Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grande Hospitality Real and City Steel 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 City Steel Public are associated (or correlated) with Grande Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grande Hospitality Real has no effect on the direction of City Steel i.e., City Steel and Grande Hospitality go up and down completely randomly.

Pair Corralation between City Steel and Grande Hospitality

Assuming the 90 days trading horizon City Steel Public is expected to under-perform the Grande Hospitality. In addition to that, City Steel is 1.52 times more volatile than Grande Hospitality Real. It trades about -0.05 of its total potential returns per unit of risk. Grande Hospitality Real is currently generating about -0.03 per unit of volatility. If you would invest  675.00  in Grande Hospitality Real on September 5, 2024 and sell it today you would lose (15.00) from holding Grande Hospitality Real or give up 2.22% of portfolio value over 90 days.

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

City Steel Public  vs.  Grande Hospitality Real

City Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, City Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Grande Hospitality Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grande Hospitality Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Grande Hospitality is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with City Steel and Grande Hospitality

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

The idea behind City Steel Public and Grande Hospitality Real 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.