Correlation Between First Phosphate and Playa Hotels

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

By analyzing existing cross correlation between First Phosphate Corp and Playa Hotels Resorts, you can compare the effects of market volatilities on First Phosphate and Playa Hotels 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 First Phosphate with a short position of Playa Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Phosphate and Playa Hotels.

Diversification Opportunities for First Phosphate and Playa Hotels

0.62

Correlation Coefficient

First Phosphate  Playa Hotels

Poor diversification

The 3 months correlation between First and Playa is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding First Phosphate Corp and Playa Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playa Hotels Resorts and First Phosphate 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 First Phosphate Corp are associated (or correlated) with Playa Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playa Hotels Resorts has no effect on the direction of First Phosphate i.e., First Phosphate and Playa Hotels go up and down completely randomly.

Pair Corralation between First Phosphate and Playa Hotels

Assuming the 90 days horizon First Phosphate Corp is expected to generate 1.75 times more return on investment than Playa Hotels. However, First Phosphate is 1.75 times more volatile than Playa Hotels Resorts. It trades about 0.18 of its potential returns per unit of risk. Playa Hotels Resorts is currently generating about 0.25 per unit of risk. If you would invest  13.00  in First Phosphate Corp on September 15, 2024 and sell it today you would earn a total of  5.00  from holding First Phosphate Corp or generate 38.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

First Phosphate Corp  vs.  Playa Hotels Resorts

First Phosphate Corp

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Phosphate Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Phosphate reported solid returns over the last few months and may actually be approaching a breakup point.

Playa Hotels Resorts

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Phosphate and Playa Hotels

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

The idea behind First Phosphate Corp and Playa Hotels Resorts 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.