Correlation Between GPT Healthcare and Royal Orchid

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

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

Diversification Opportunities for GPT Healthcare and Royal Orchid

0.83

Correlation Coefficient

GPT Healthcare  Royal Orchid

Very poor diversification

The 3 months correlation between GPT and Royal is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding GPT Healthcare 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 GPT Healthcare 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 GPT Healthcare 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 GPT Healthcare i.e., GPT Healthcare and Royal Orchid go up and down completely randomly.

Pair Corralation between GPT Healthcare and Royal Orchid

Assuming the 90 days trading horizon GPT Healthcare is expected to generate 1.7 times less return on investment than Royal Orchid. But when comparing it to its historical volatility, GPT Healthcare is 1.11 times less risky than Royal Orchid. It trades about 0.01 of its potential returns per unit of risk. Royal Orchid Hotels is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  36,085  in Royal Orchid Hotels on September 19, 2024 and sell it today you would earn a total of  135.00  from holding Royal Orchid Hotels or generate 0.37% return on investment over 90 days.

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

GPT Healthcare  vs.  Royal Orchid Hotels

GPT Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Royal Orchid Hotels

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Royal Orchid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GPT Healthcare and Royal Orchid

The main advantage of trading using opposite GPT Healthcare and Royal Orchid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GPT Healthcare 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 GPT Healthcare 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.