Correlation Between ACL Plastics and Lighthouse Hotel

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

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

Diversification Opportunities for ACL Plastics and Lighthouse Hotel

0.23

Correlation Coefficient

ACL Plastics  Lighthouse Hotel

Modest diversification

The 3 months correlation between ACL and Lighthouse is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding ACL Plastics PLC and Lighthouse Hotel PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lighthouse Hotel PLC and ACL Plastics 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 ACL Plastics PLC are associated (or correlated) with Lighthouse Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lighthouse Hotel PLC has no effect on the direction of ACL Plastics i.e., ACL Plastics and Lighthouse Hotel go up and down completely randomly.

Pair Corralation between ACL Plastics and Lighthouse Hotel

Assuming the 90 days trading horizon ACL Plastics PLC is expected to generate 0.83 times more return on investment than Lighthouse Hotel. However, ACL Plastics PLC is 1.2 times less risky than Lighthouse Hotel. It trades about 0.07 of its potential returns per unit of risk. Lighthouse Hotel PLC is currently generating about -0.06 per unit of risk. If you would invest  57,450  in ACL Plastics PLC on December 26, 2024 and sell it today you would earn a total of  4,725  from holding ACL Plastics PLC or generate 8.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.49%
Values	Daily Returns

ACL Plastics PLC  vs.  Lighthouse Hotel PLC

ACL Plastics PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ACL Plastics PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ACL Plastics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lighthouse Hotel PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lighthouse Hotel PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ACL Plastics and Lighthouse Hotel

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

The idea behind ACL Plastics PLC and Lighthouse Hotel 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.