Correlation Between Blue Coast and Power Finance

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

Diversification Opportunities for Blue Coast and Power Finance

-0.29

Correlation Coefficient

Blue Coast  Power Finance

Very good diversification

The 3 months correlation between Blue and Power is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Blue Coast Hotels and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Blue Coast i.e., Blue Coast and Power Finance go up and down completely randomly.

Pair Corralation between Blue Coast and Power Finance

Assuming the 90 days trading horizon Blue Coast Hotels is expected to generate 0.71 times more return on investment than Power Finance. However, Blue Coast Hotels is 1.41 times less risky than Power Finance. It trades about 0.17 of its potential returns per unit of risk. Power Finance is currently generating about 0.08 per unit of risk. If you would invest  565.00  in Blue Coast Hotels on September 26, 2024 and sell it today you would earn a total of  792.00  from holding Blue Coast Hotels or generate 140.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	82.18%
Values	Daily Returns

Blue Coast Hotels  vs.  Power Finance

Blue Coast Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

Power Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Blue Coast and Power Finance

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

The idea behind Blue Coast Hotels and Power Finance 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.