Correlation Between Hotel Holiday and Cheng Mei

Can any of the company-specific risk be diversified away by investing in both Hotel Holiday and Cheng Mei 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 Cheng Mei 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 Cheng Mei Materials, you can compare the effects of market volatilities on Hotel Holiday and Cheng Mei 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 Cheng Mei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hotel Holiday and Cheng Mei.

Diversification Opportunities for Hotel Holiday and Cheng Mei

0.42

Correlation Coefficient

Hotel Holiday  Cheng Mei

Very weak diversification

The 3 months correlation between Hotel and Cheng is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Hotel Holiday Garden and Cheng Mei Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Mei Materials 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 Cheng Mei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Mei Materials has no effect on the direction of Hotel Holiday i.e., Hotel Holiday and Cheng Mei go up and down completely randomly.

Pair Corralation between Hotel Holiday and Cheng Mei

Assuming the 90 days trading horizon Hotel Holiday Garden is expected to under-perform the Cheng Mei. In addition to that, Hotel Holiday is 1.05 times more volatile than Cheng Mei Materials. It trades about -0.06 of its total potential returns per unit of risk. Cheng Mei Materials is currently generating about -0.03 per unit of volatility. If you would invest  1,350  in Cheng Mei Materials on December 29, 2024 and sell it today you would lose (35.00) from holding Cheng Mei Materials or give up 2.59% of portfolio value over 90 days.

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

Hotel Holiday Garden  vs.  Cheng Mei Materials

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.

Cheng Mei Materials

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hotel Holiday and Cheng Mei

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

The idea behind Hotel Holiday Garden and Cheng Mei Materials 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.