Correlation Between Blue Coast and ITI

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

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

Diversification Opportunities for Blue Coast and ITI

0.75

Correlation Coefficient

Blue Coast  ITI

Poor diversification

The 3 months correlation between Blue and ITI is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Blue Coast Hotels and ITI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITI Limited and Blue Coast 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 Coast Hotels are associated (or correlated) with ITI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITI Limited has no effect on the direction of Blue Coast i.e., Blue Coast and ITI go up and down completely randomly.

Pair Corralation between Blue Coast and ITI

Assuming the 90 days trading horizon Blue Coast Hotels is expected to generate 0.54 times more return on investment than ITI. However, Blue Coast Hotels is 1.87 times less risky than ITI. It trades about 0.93 of its potential returns per unit of risk. ITI Limited is currently generating about 0.16 per unit of risk. If you would invest  1,016  in Blue Coast Hotels on October 12, 2024 and sell it today you would earn a total of  1,168  from holding Blue Coast Hotels or generate 114.96% return on investment over 90 days.

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

Blue Coast Hotels  vs.  ITI Limited

Blue Coast Hotels

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

ITI Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Blue Coast and ITI

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

The idea behind Blue Coast Hotels and ITI 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 Transaction History module to view history of all your transactions and understand their impact on performance.