Correlation Between Lemon Tree and Piramal Enterprises

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

Diversification Opportunities for Lemon Tree and Piramal Enterprises

0.75

Correlation Coefficient

Lemon Tree  Piramal Enterprises

Poor diversification

The 3 months correlation between Lemon and Piramal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Piramal Enterprises Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piramal Enterprises 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 Piramal Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piramal Enterprises has no effect on the direction of Lemon Tree i.e., Lemon Tree and Piramal Enterprises go up and down completely randomly.

Pair Corralation between Lemon Tree and Piramal Enterprises

Assuming the 90 days trading horizon Lemon Tree is expected to generate 1.66 times less return on investment than Piramal Enterprises. But when comparing it to its historical volatility, Lemon Tree Hotels is 1.18 times less risky than Piramal Enterprises. It trades about 0.08 of its potential returns per unit of risk. Piramal Enterprises Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  111,910  in Piramal Enterprises Limited on September 13, 2024 and sell it today you would earn a total of  15,070  from holding Piramal Enterprises Limited or generate 13.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Lemon Tree Hotels  vs.  Piramal Enterprises Limited

Lemon Tree Hotels

Risk-Adjusted Performance

6 of 100

OK

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.

Piramal Enterprises

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Piramal Enterprises Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Piramal Enterprises exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lemon Tree and Piramal Enterprises

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

The idea behind Lemon Tree Hotels and Piramal Enterprises Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.