Correlation Between Playa Hotels and Gear Energy

Can any of the company-specific risk be diversified away by investing in both Playa Hotels and Gear Energy 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 Playa Hotels and Gear Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Playa Hotels Resorts and Gear Energy, you can compare the effects of market volatilities on Playa Hotels and Gear Energy 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 Playa Hotels with a short position of Gear Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Playa Hotels and Gear Energy.

Diversification Opportunities for Playa Hotels and Gear Energy

-0.56

Correlation Coefficient

Playa Hotels  Gear Energy

Excellent diversification

The 3 months correlation between Playa and Gear is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and Playa Hotels 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 Playa Hotels Resorts are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of Playa Hotels i.e., Playa Hotels and Gear Energy go up and down completely randomly.

Pair Corralation between Playa Hotels and Gear Energy

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 0.63 times more return on investment than Gear Energy. However, Playa Hotels Resorts is 1.59 times less risky than Gear Energy. It trades about 0.23 of its potential returns per unit of risk. Gear Energy is currently generating about -0.03 per unit of risk. If you would invest  675.00  in Playa Hotels Resorts on September 12, 2024 and sell it today you would earn a total of  260.00  from holding Playa Hotels Resorts or generate 38.52% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  Gear Energy

Playa Hotels Resorts

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Playa Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Playa Hotels and Gear Energy

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

The idea behind Playa Hotels Resorts and Gear Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.