Correlation Between Hotel Holiday and Far Eastern

Can any of the company-specific risk be diversified away by investing in both Hotel Holiday and Far Eastern 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 Hotel Holiday and Far Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hotel Holiday Garden and Far Eastern Department, you can compare the effects of market volatilities on Hotel Holiday and Far Eastern 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 Hotel Holiday with a short position of Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hotel Holiday and Far Eastern.

Diversification Opportunities for Hotel Holiday and Far Eastern

-0.01

Correlation Coefficient

Hotel Holiday  Far Eastern

Good diversification

The 3 months correlation between Hotel and Far is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Hotel Holiday Garden and Far Eastern Department in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern Department and Hotel Holiday 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 Hotel Holiday Garden are associated (or correlated) with Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern Department has no effect on the direction of Hotel Holiday i.e., Hotel Holiday and Far Eastern go up and down completely randomly.

Pair Corralation between Hotel Holiday and Far Eastern

Assuming the 90 days trading horizon Hotel Holiday Garden is expected to under-perform the Far Eastern. But the stock apears to be less risky and, when comparing its historical volatility, Hotel Holiday Garden is 1.14 times less risky than Far Eastern. The stock trades about -0.04 of its potential returns per unit of risk. The Far Eastern Department is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,270  in Far Eastern Department on December 28, 2024 and sell it today you would earn a total of  255.00  from holding Far Eastern Department or generate 11.23% return on investment over 90 days.

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

Hotel Holiday Garden  vs.  Far Eastern Department

Hotel Holiday Garden

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hotel Holiday Garden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hotel Holiday is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Far Eastern Department

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Far Eastern Department are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Far Eastern showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hotel Holiday and Far Eastern

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

The idea behind Hotel Holiday Garden and Far Eastern Department 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.