Correlation Between Les Hotels and Carbios

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

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

Diversification Opportunities for Les Hotels and Carbios

-0.03

Correlation Coefficient

Les Hotels  Carbios

Good diversification

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

Pair Corralation between Les Hotels and Carbios

Assuming the 90 days trading horizon Les Hotels Bav is expected to generate 0.63 times more return on investment than Carbios. However, Les Hotels Bav is 1.59 times less risky than Carbios. It trades about 0.04 of its potential returns per unit of risk. Carbios is currently generating about -0.02 per unit of risk. If you would invest  7,200  in Les Hotels Bav on December 31, 2024 and sell it today you would earn a total of  300.00  from holding Les Hotels Bav or generate 4.17% return on investment over 90 days.

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

Les Hotels Bav  vs.  Carbios

Les Hotels Bav

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Les Hotels Bav are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Les Hotels is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Carbios

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carbios has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Carbios is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Les Hotels and Carbios

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

The idea behind Les Hotels Bav and Carbios 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.