Correlation Between Lemon Tree and Pilani Investment

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

Diversification Opportunities for Lemon Tree and Pilani Investment

-0.3

Correlation Coefficient

Lemon Tree  Pilani Investment

Very good diversification

The 3 months correlation between Lemon and Pilani is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Pilani Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilani Investment 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 Pilani Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilani Investment has no effect on the direction of Lemon Tree i.e., Lemon Tree and Pilani Investment go up and down completely randomly.

Pair Corralation between Lemon Tree and Pilani Investment

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to generate 0.43 times more return on investment than Pilani Investment. However, Lemon Tree Hotels is 2.34 times less risky than Pilani Investment. It trades about 0.19 of its potential returns per unit of risk. Pilani Investment and is currently generating about 0.01 per unit of risk. If you would invest  12,174  in Lemon Tree Hotels on October 1, 2024 and sell it today you would earn a total of  2,776  from holding Lemon Tree Hotels or generate 22.8% return on investment over 90 days.

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

Lemon Tree Hotels  vs.  Pilani Investment and

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 unfluctuating basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pilani Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pilani Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Pilani Investment is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lemon Tree and Pilani Investment

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

The idea behind Lemon Tree Hotels and Pilani Investment and 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.