Correlation Between Blue Label and City Lodge

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

By analyzing existing cross correlation between Blue Label Telecoms and City Lodge Hotels, you can compare the effects of market volatilities on Blue Label and City Lodge 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 Blue Label with a short position of City Lodge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Label and City Lodge.

Diversification Opportunities for Blue Label and City Lodge

0.51

Correlation Coefficient

Blue Label  City Lodge

Very weak diversification

The 3 months correlation between Blue and City is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Blue Label Telecoms and City Lodge Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Lodge Hotels and Blue Label 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 Blue Label Telecoms are associated (or correlated) with City Lodge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Lodge Hotels has no effect on the direction of Blue Label i.e., Blue Label and City Lodge go up and down completely randomly.

Pair Corralation between Blue Label and City Lodge

Assuming the 90 days trading horizon Blue Label Telecoms is expected to generate 1.31 times more return on investment than City Lodge. However, Blue Label is 1.31 times more volatile than City Lodge Hotels. It trades about -0.07 of its potential returns per unit of risk. City Lodge Hotels is currently generating about -0.57 per unit of risk. If you would invest  56,700  in Blue Label Telecoms on October 22, 2024 and sell it today you would lose (1,200) from holding Blue Label Telecoms or give up 2.12% of portfolio value over 90 days.

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

Blue Label Telecoms  vs.  City Lodge Hotels

Blue Label Telecoms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blue Label Telecoms has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Blue Label is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

City Lodge Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Lodge Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Blue Label and City Lodge

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

The idea behind Blue Label Telecoms and City Lodge 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 Transaction History module to view history of all your transactions and understand their impact on performance.