Correlation Between Lemon Tree and Associated Alcohols

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

By analyzing existing cross correlation between Lemon Tree Hotels and Associated Alcohols Breweries, you can compare the effects of market volatilities on Lemon Tree and Associated Alcohols 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 Lemon Tree with a short position of Associated Alcohols. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lemon Tree and Associated Alcohols.

Diversification Opportunities for Lemon Tree and Associated Alcohols

0.92

Correlation Coefficient

Lemon Tree  Associated Alcohols

Almost no diversification

The 3 months correlation between Lemon and Associated is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Associated Alcohols Breweries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated Alcohols and Lemon Tree 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 Lemon Tree Hotels are associated (or correlated) with Associated Alcohols. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated Alcohols has no effect on the direction of Lemon Tree i.e., Lemon Tree and Associated Alcohols go up and down completely randomly.

Pair Corralation between Lemon Tree and Associated Alcohols

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to generate 0.68 times more return on investment than Associated Alcohols. However, Lemon Tree Hotels is 1.47 times less risky than Associated Alcohols. It trades about 0.2 of its potential returns per unit of risk. Associated Alcohols Breweries is currently generating about 0.09 per unit of risk. If you would invest  12,601  in Lemon Tree Hotels on September 20, 2024 and sell it today you would earn a total of  2,878  from holding Lemon Tree Hotels or generate 22.84% return on investment over 90 days.

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

Lemon Tree Hotels  vs.  Associated Alcohols Breweries

Lemon Tree Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Associated Alcohols

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Associated Alcohols Breweries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Associated Alcohols reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lemon Tree and Associated Alcohols

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

The idea behind Lemon Tree Hotels and Associated Alcohols Breweries 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.