Correlation Between MIRC Electronics and Lemon Tree

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

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

Diversification Opportunities for MIRC Electronics and Lemon Tree

0.34

Correlation Coefficient

MIRC Electronics  Lemon Tree

Weak diversification

The 3 months correlation between MIRC and Lemon is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding MIRC Electronics Limited and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and MIRC Electronics 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 MIRC Electronics Limited are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of MIRC Electronics i.e., MIRC Electronics and Lemon Tree go up and down completely randomly.

Pair Corralation between MIRC Electronics and Lemon Tree

Assuming the 90 days trading horizon MIRC Electronics Limited is expected to under-perform the Lemon Tree. In addition to that, MIRC Electronics is 1.62 times more volatile than Lemon Tree Hotels. It trades about -0.01 of its total potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.2 per unit of volatility. If you would invest  12,374  in Lemon Tree Hotels on September 24, 2024 and sell it today you would earn a total of  2,962  from holding Lemon Tree Hotels or generate 23.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

MIRC Electronics Limited  vs.  Lemon Tree Hotels

MIRC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MIRC Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MIRC Electronics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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

Pair Trading with MIRC Electronics and Lemon Tree

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

The idea behind MIRC Electronics Limited and Lemon Tree 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.