Correlation Between BF Utilities and Lemon Tree

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

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

Diversification Opportunities for BF Utilities and Lemon Tree

0.19

Correlation Coefficient

BF Utilities  Lemon Tree

Average diversification

The 3 months correlation between BFUTILITIE and Lemon is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding BF Utilities 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 BF Utilities 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 BF Utilities 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 BF Utilities i.e., BF Utilities and Lemon Tree go up and down completely randomly.

Pair Corralation between BF Utilities and Lemon Tree

Assuming the 90 days trading horizon BF Utilities is expected to generate 2.11 times less return on investment than Lemon Tree. In addition to that, BF Utilities is 2.29 times more volatile than Lemon Tree Hotels. It trades about 0.24 of its total potential returns per unit of risk. Lemon Tree Hotels is currently generating about 1.18 per unit of volatility. If you would invest  12,164  in Lemon Tree Hotels on September 21, 2024 and sell it today you would earn a total of  3,589  from holding Lemon Tree Hotels or generate 29.51% return on investment over 90 days.

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

BF Utilities Limited  vs.  Lemon Tree Hotels

BF Utilities Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Lemon Tree Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BF Utilities and Lemon Tree

The main advantage of trading using opposite BF Utilities and Lemon Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BF Utilities 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 BF Utilities 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.