Correlation Between InterContinental and Evolution

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

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

Diversification Opportunities for InterContinental and Evolution

-0.58

Correlation Coefficient

InterContinental  Evolution

Excellent diversification

The 3 months correlation between InterContinental and Evolution is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB and InterContinental 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 InterContinental Hotels Group are associated (or correlated) with Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of InterContinental i.e., InterContinental and Evolution go up and down completely randomly.

Pair Corralation between InterContinental and Evolution

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.69 times more return on investment than Evolution. However, InterContinental Hotels Group is 1.44 times less risky than Evolution. It trades about 0.26 of its potential returns per unit of risk. Evolution AB is currently generating about -0.02 per unit of risk. If you would invest  9,300  in InterContinental Hotels Group on September 13, 2024 and sell it today you would earn a total of  2,600  from holding InterContinental Hotels Group or generate 27.96% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Evolution AB

InterContinental Hotels

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Evolution is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with InterContinental and Evolution

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

The idea behind InterContinental Hotels Group and Evolution AB 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 Transaction History module to view history of all your transactions and understand their impact on performance.