Correlation Between Sports Gear and First Hotel

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

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

Diversification Opportunities for Sports Gear and First Hotel

-0.03

Correlation Coefficient

Sports Gear  First Hotel

Good diversification

The 3 months correlation between Sports and First is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sports Gear Co and First Hotel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Hotel and Sports Gear 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 Sports Gear Co are associated (or correlated) with First Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Hotel has no effect on the direction of Sports Gear i.e., Sports Gear and First Hotel go up and down completely randomly.

Pair Corralation between Sports Gear and First Hotel

Assuming the 90 days trading horizon Sports Gear Co is expected to generate 1.46 times more return on investment than First Hotel. However, Sports Gear is 1.46 times more volatile than First Hotel Co. It trades about 0.08 of its potential returns per unit of risk. First Hotel Co is currently generating about 0.01 per unit of risk. If you would invest  6,411  in Sports Gear Co on September 26, 2024 and sell it today you would earn a total of  5,839  from holding Sports Gear Co or generate 91.08% return on investment over 90 days.

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

Sports Gear Co  vs.  First Hotel Co

Sports Gear

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sports Gear Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sports Gear showed solid returns over the last few months and may actually be approaching a breakup point.

First Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Hotel Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Hotel 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 Sports Gear and First Hotel

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

The idea behind Sports Gear Co and First Hotel Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.