Correlation Between Gujarat Fluorochemicals and Lemon Tree

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

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

Diversification Opportunities for Gujarat Fluorochemicals and Lemon Tree

-0.46

Correlation Coefficient

Gujarat Fluorochemicals  Lemon Tree

Very good diversification

The 3 months correlation between Gujarat and Lemon is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Fluorochemicals Limite 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 Gujarat Fluorochemicals 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 Gujarat Fluorochemicals Limited 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 Gujarat Fluorochemicals i.e., Gujarat Fluorochemicals and Lemon Tree go up and down completely randomly.

Pair Corralation between Gujarat Fluorochemicals and Lemon Tree

Assuming the 90 days trading horizon Gujarat Fluorochemicals Limited is expected to generate 1.73 times more return on investment than Lemon Tree. However, Gujarat Fluorochemicals is 1.73 times more volatile than Lemon Tree Hotels. It trades about 0.13 of its potential returns per unit of risk. Lemon Tree Hotels is currently generating about -0.01 per unit of risk. If you would invest  317,636  in Gujarat Fluorochemicals Limited on August 31, 2024 and sell it today you would earn a total of  77,474  from holding Gujarat Fluorochemicals Limited or generate 24.39% return on investment over 90 days.

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

Gujarat Fluorochemicals Limite  vs.  Lemon Tree Hotels

Gujarat Fluorochemicals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Fluorochemicals Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Gujarat Fluorochemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Gujarat Fluorochemicals and Lemon Tree

The main advantage of trading using opposite Gujarat Fluorochemicals and Lemon Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gujarat Fluorochemicals 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 Gujarat Fluorochemicals Limited 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..