Correlation Between Shangri La and Royal Orchid

Can any of the company-specific risk be diversified away by investing in both Shangri La and Royal Orchid 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 Shangri La and Royal Orchid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shangri La Hotel Public and Royal Orchid Hotel, you can compare the effects of market volatilities on Shangri La and Royal Orchid 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 Shangri La with a short position of Royal Orchid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shangri La and Royal Orchid.

Diversification Opportunities for Shangri La and Royal Orchid

-0.02

Correlation Coefficient

Shangri La  Royal Orchid

Good diversification

The 3 months correlation between Shangri and Royal is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Shangri La Hotel Public and Royal Orchid Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid Hotel and Shangri La 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 Shangri La Hotel Public are associated (or correlated) with Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotel has no effect on the direction of Shangri La i.e., Shangri La and Royal Orchid go up and down completely randomly.

Pair Corralation between Shangri La and Royal Orchid

Assuming the 90 days trading horizon Shangri La Hotel Public is expected to generate 47.54 times more return on investment than Royal Orchid. However, Shangri La is 47.54 times more volatile than Royal Orchid Hotel. It trades about 0.12 of its potential returns per unit of risk. Royal Orchid Hotel is currently generating about -0.02 per unit of risk. If you would invest  4,875  in Shangri La Hotel Public on September 14, 2024 and sell it today you would lose (25.00) from holding Shangri La Hotel Public or give up 0.51% of portfolio value over 90 days.

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

Shangri La Hotel Public  vs.  Royal Orchid Hotel

Shangri La Hotel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shangri La Hotel Public are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Shangri La sustained solid returns over the last few months and may actually be approaching a breakup point.

Royal Orchid Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Orchid Hotel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical indicators, Royal Orchid is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Shangri La and Royal Orchid

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

The idea behind Shangri La Hotel Public and Royal Orchid Hotel 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.