Correlation Between Piramal Enterprises and Lemon Tree

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

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

Diversification Opportunities for Piramal Enterprises and Lemon Tree

0.75

Correlation Coefficient

Piramal Enterprises  Lemon Tree

Poor diversification

The 3 months correlation between Piramal and Lemon is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Piramal Enterprises 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 Piramal Enterprises 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 Piramal Enterprises 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 Piramal Enterprises i.e., Piramal Enterprises and Lemon Tree go up and down completely randomly.

Pair Corralation between Piramal Enterprises and Lemon Tree

Assuming the 90 days trading horizon Piramal Enterprises Limited is expected to generate 1.18 times more return on investment than Lemon Tree. However, Piramal Enterprises is 1.18 times more volatile than Lemon Tree Hotels. It trades about 0.11 of its potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.08 per unit of risk. 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

Piramal Enterprises Limited  vs.  Lemon Tree Hotels

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.

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.

Pair Trading with Piramal Enterprises and Lemon Tree

The main advantage of trading using opposite Piramal Enterprises and Lemon Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Piramal Enterprises 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 Piramal Enterprises 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.