Correlation Between Asian Hotels and Hotel Sigiriya

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

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

Diversification Opportunities for Asian Hotels and Hotel Sigiriya

0.88

Correlation Coefficient

Asian Hotels  Hotel Sigiriya

Very poor diversification

The 3 months correlation between Asian and Hotel is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Asian Hotels and and Hotel Sigiriya PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotel Sigiriya PLC and Asian 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 Asian Hotels and are associated (or correlated) with Hotel Sigiriya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotel Sigiriya PLC has no effect on the direction of Asian Hotels i.e., Asian Hotels and Hotel Sigiriya go up and down completely randomly.

Pair Corralation between Asian Hotels and Hotel Sigiriya

Assuming the 90 days trading horizon Asian Hotels is expected to generate 4.05 times less return on investment than Hotel Sigiriya. But when comparing it to its historical volatility, Asian Hotels and is 1.77 times less risky than Hotel Sigiriya. It trades about 0.12 of its potential returns per unit of risk. Hotel Sigiriya PLC is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  4,420  in Hotel Sigiriya PLC on September 22, 2024 and sell it today you would earn a total of  2,770  from holding Hotel Sigiriya PLC or generate 62.67% return on investment over 90 days.

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

Asian Hotels and  vs.  Hotel Sigiriya PLC

Asian Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels and are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Asian Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Hotel Sigiriya PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hotel Sigiriya PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hotel Sigiriya sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asian Hotels and Hotel Sigiriya

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

The idea behind Asian Hotels and and Hotel Sigiriya PLC 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.