Correlation Between Playa Hotels and First Phosphate

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

Diversification Opportunities for Playa Hotels and First Phosphate

0.61

Correlation Coefficient

Playa Hotels  First Phosphate

Poor diversification

The 3 months correlation between Playa and First is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and First Phosphate Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Phosphate Corp 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 First Phosphate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Phosphate Corp has no effect on the direction of Playa Hotels i.e., Playa Hotels and First Phosphate go up and down completely randomly.

Pair Corralation between Playa Hotels and First Phosphate

Given the investment horizon of 90 days Playa Hotels is expected to generate 1.21 times less return on investment than First Phosphate. But when comparing it to its historical volatility, Playa Hotels Resorts is 2.82 times less risky than First Phosphate. It trades about 0.24 of its potential returns per unit of risk. First Phosphate Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  15.00  in First Phosphate Corp on September 15, 2024 and sell it today you would earn a total of  1.00  from holding First Phosphate Corp or generate 6.67% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  First Phosphate Corp

Playa Hotels Resorts

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

First Phosphate Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Phosphate Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Phosphate reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Playa Hotels and First Phosphate

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

The idea behind Playa Hotels Resorts and First Phosphate Corp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.