Correlation Between Asian Hotels and IG Petrochemicals

Can any of the company-specific risk be diversified away by investing in both Asian Hotels and IG Petrochemicals 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 IG Petrochemicals 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 IG Petrochemicals Limited, you can compare the effects of market volatilities on Asian Hotels and IG Petrochemicals 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 IG Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asian Hotels and IG Petrochemicals.

Diversification Opportunities for Asian Hotels and IG Petrochemicals

-0.01

Correlation Coefficient

Asian Hotels  IG Petrochemicals

Good diversification

The 3 months correlation between Asian and IGPL is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Asian Hotels Limited and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals 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 IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of Asian Hotels i.e., Asian Hotels and IG Petrochemicals go up and down completely randomly.

Pair Corralation between Asian Hotels and IG Petrochemicals

Assuming the 90 days trading horizon Asian Hotels Limited is expected to generate 1.37 times more return on investment than IG Petrochemicals. However, Asian Hotels is 1.37 times more volatile than IG Petrochemicals Limited. It trades about 0.11 of its potential returns per unit of risk. IG Petrochemicals Limited is currently generating about 0.03 per unit of risk. If you would invest  7,955  in Asian Hotels Limited on October 5, 2024 and sell it today you would earn a total of  24,910  from holding Asian Hotels Limited or generate 313.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Asian Hotels Limited  vs.  IG Petrochemicals Limited

Asian Hotels Limited

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Asian Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

IG Petrochemicals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IG Petrochemicals Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IG Petrochemicals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Asian Hotels and IG Petrochemicals

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

The idea behind Asian Hotels Limited and IG Petrochemicals Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.