Correlation Between Investec Limited and City Lodge

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

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

Diversification Opportunities for Investec Limited and City Lodge

0.39

Correlation Coefficient

Investec Limited  City Lodge

Weak diversification

The 3 months correlation between Investec and City is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Investec Limited NON and City Lodge Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Lodge Hotels and Investec Limited 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 Investec Limited NON are associated (or correlated) with City Lodge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Lodge Hotels has no effect on the direction of Investec Limited i.e., Investec Limited and City Lodge go up and down completely randomly.

Pair Corralation between Investec Limited and City Lodge

Assuming the 90 days trading horizon Investec Limited is expected to generate 1.99 times less return on investment than City Lodge. But when comparing it to its historical volatility, Investec Limited NON is 1.43 times less risky than City Lodge. It trades about 0.03 of its potential returns per unit of risk. City Lodge Hotels is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  44,200  in City Lodge Hotels on September 14, 2024 and sell it today you would earn a total of  6,800  from holding City Lodge Hotels or generate 15.38% return on investment over 90 days.

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

Investec Limited NON  vs.  City Lodge Hotels

Investec Limited NON

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Limited NON are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Investec Limited is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

City Lodge Hotels

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in City Lodge Hotels are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, City Lodge exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investec Limited and City Lodge

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

The idea behind Investec Limited NON and City Lodge 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.