Correlation Between Lemon Tree and N B

Can any of the company-specific risk be diversified away by investing in both Lemon Tree and N B 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 N B 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 N B I, you can compare the effects of market volatilities on Lemon Tree and N B 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 N B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lemon Tree and N B.

Diversification Opportunities for Lemon Tree and N B

0.68

Correlation Coefficient

Lemon Tree  N B

Poor diversification

The 3 months correlation between Lemon and NBIFIN is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and N B I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on N B I 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 N B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of N B I has no effect on the direction of Lemon Tree i.e., Lemon Tree and N B go up and down completely randomly.

Pair Corralation between Lemon Tree and N B

Assuming the 90 days trading horizon Lemon Tree is expected to generate 5.33 times less return on investment than N B. But when comparing it to its historical volatility, Lemon Tree Hotels is 1.68 times less risky than N B. It trades about 0.08 of its potential returns per unit of risk. N B I is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  237,050  in N B I on September 13, 2024 and sell it today you would earn a total of  126,580  from holding N B I or generate 53.4% return on investment over 90 days.

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

Lemon Tree Hotels  vs.  N B I

Lemon Tree Hotels

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Lemon Tree may actually be approaching a critical reversion point that can send shares even higher in January 2025.

N B I

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in N B I are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, N B sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lemon Tree and N B

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

The idea behind Lemon Tree Hotels and N B I 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.