Correlation Between Arvind and Lemon Tree

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

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

Diversification Opportunities for Arvind and Lemon Tree

0.6

Correlation Coefficient

Arvind  Lemon Tree

Poor diversification

The 3 months correlation between Arvind and Lemon is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Arvind Limited and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and Arvind 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 Arvind Limited are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of Arvind i.e., Arvind and Lemon Tree go up and down completely randomly.

Pair Corralation between Arvind and Lemon Tree

Assuming the 90 days trading horizon Arvind Limited is expected to under-perform the Lemon Tree. In addition to that, Arvind is 1.09 times more volatile than Lemon Tree Hotels. It trades about -0.09 of its total potential returns per unit of risk. Lemon Tree Hotels is currently generating about -0.04 per unit of volatility. If you would invest  14,972  in Lemon Tree Hotels on December 26, 2024 and sell it today you would lose (1,326) from holding Lemon Tree Hotels or give up 8.86% of portfolio value over 90 days.

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

Arvind Limited  vs.  Lemon Tree Hotels

Arvind Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arvind Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lemon Tree Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lemon Tree Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Arvind and Lemon Tree

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

The idea behind Arvind Limited and Lemon Tree Hotels 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.