Correlation Between American Hotel and Caribbean Utilities

Can any of the company-specific risk be diversified away by investing in both American Hotel and Caribbean Utilities 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 American Hotel and Caribbean Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Hotel Income and Caribbean Utilities, you can compare the effects of market volatilities on American Hotel and Caribbean Utilities 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 American Hotel with a short position of Caribbean Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Hotel and Caribbean Utilities.

Diversification Opportunities for American Hotel and Caribbean Utilities

0.25

Correlation Coefficient

American Hotel  Caribbean Utilities

Modest diversification

The 3 months correlation between American and Caribbean is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding American Hotel Income and Caribbean Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caribbean Utilities and American Hotel 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 American Hotel Income are associated (or correlated) with Caribbean Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caribbean Utilities has no effect on the direction of American Hotel i.e., American Hotel and Caribbean Utilities go up and down completely randomly.

Pair Corralation between American Hotel and Caribbean Utilities

Assuming the 90 days trading horizon American Hotel Income is expected to generate 3.43 times more return on investment than Caribbean Utilities. However, American Hotel is 3.43 times more volatile than Caribbean Utilities. It trades about 0.02 of its potential returns per unit of risk. Caribbean Utilities is currently generating about 0.02 per unit of risk. If you would invest  34.00  in American Hotel Income on September 8, 2024 and sell it today you would earn a total of  0.00  from holding American Hotel Income or generate 0.0% return on investment over 90 days.

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

American Hotel Income  vs.  Caribbean Utilities

American Hotel Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Hotel Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, American Hotel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Caribbean Utilities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caribbean Utilities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caribbean Utilities is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Hotel and Caribbean Utilities

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

The idea behind American Hotel Income and Caribbean Utilities 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 Global Correlations module to find global opportunities by holding instruments from different markets.