Correlation Between Advani Hotels and Southern Petrochemicals

Can any of the company-specific risk be diversified away by investing in both Advani Hotels and Southern Petrochemicals 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 Advani Hotels and Southern Petrochemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Advani Hotels Resorts and Southern Petrochemicals Industries, you can compare the effects of market volatilities on Advani Hotels and Southern Petrochemicals 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 Advani Hotels with a short position of Southern Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advani Hotels and Southern Petrochemicals.

Diversification Opportunities for Advani Hotels and Southern Petrochemicals

0.68

Correlation Coefficient

Advani Hotels  Southern Petrochemicals

Poor diversification

The 3 months correlation between Advani and Southern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Advani Hotels Resorts and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals and Advani 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 Advani Hotels Resorts are associated (or correlated) with Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Advani Hotels i.e., Advani Hotels and Southern Petrochemicals go up and down completely randomly.

Pair Corralation between Advani Hotels and Southern Petrochemicals

Assuming the 90 days trading horizon Advani Hotels Resorts is expected to generate 0.86 times more return on investment than Southern Petrochemicals. However, Advani Hotels Resorts is 1.16 times less risky than Southern Petrochemicals. It trades about -0.04 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about -0.08 per unit of risk. If you would invest  7,130  in Advani Hotels Resorts on October 6, 2024 and sell it today you would lose (98.00) from holding Advani Hotels Resorts or give up 1.37% of portfolio value over 90 days.

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

Advani Hotels Resorts  vs.  Southern Petrochemicals Indust

Advani Hotels Resorts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advani Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Advani Hotels is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Southern Petrochemicals is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Advani Hotels and Southern Petrochemicals

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

The idea behind Advani Hotels Resorts and Southern Petrochemicals Industries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.