Correlation Between Asian Hotels and Chambal Fertilizers

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

By analyzing existing cross correlation between Asian Hotels Limited and Chambal Fertilizers Chemicals, you can compare the effects of market volatilities on Asian Hotels and Chambal Fertilizers 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 Chambal Fertilizers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asian Hotels and Chambal Fertilizers.

Diversification Opportunities for Asian Hotels and Chambal Fertilizers

0.23

Correlation Coefficient

Asian Hotels  Chambal Fertilizers

Modest diversification

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

Pair Corralation between Asian Hotels and Chambal Fertilizers

Assuming the 90 days trading horizon Asian Hotels Limited is expected to generate 1.83 times more return on investment than Chambal Fertilizers. However, Asian Hotels is 1.83 times more volatile than Chambal Fertilizers Chemicals. It trades about 0.17 of its potential returns per unit of risk. Chambal Fertilizers Chemicals is currently generating about 0.03 per unit of risk. If you would invest  19,727  in Asian Hotels Limited on October 10, 2024 and sell it today you would earn a total of  8,458  from holding Asian Hotels Limited or generate 42.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Asian Hotels Limited  vs.  Chambal Fertilizers Chemicals

Asian Hotels Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Asian Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Chambal Fertilizers

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chambal Fertilizers Chemicals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Chambal Fertilizers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Asian Hotels and Chambal Fertilizers

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

The idea behind Asian Hotels Limited and Chambal Fertilizers Chemicals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.