Correlation Between Blue Coast and VIP Clothing

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

Diversification Opportunities for Blue Coast and VIP Clothing

0.14

Correlation Coefficient

Blue Coast  VIP Clothing

Average diversification

The 3 months correlation between Blue and VIP is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Blue Coast Hotels and VIP Clothing Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIP Clothing 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 VIP Clothing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIP Clothing Limited has no effect on the direction of Blue Coast i.e., Blue Coast and VIP Clothing go up and down completely randomly.

Pair Corralation between Blue Coast and VIP Clothing

Assuming the 90 days trading horizon Blue Coast Hotels is expected to generate 1.47 times more return on investment than VIP Clothing. However, Blue Coast is 1.47 times more volatile than VIP Clothing Limited. It trades about 0.97 of its potential returns per unit of risk. VIP Clothing Limited is currently generating about -0.31 per unit of risk. If you would invest  1,016  in Blue Coast Hotels on October 14, 2024 and sell it today you would earn a total of  1,211  from holding Blue Coast Hotels or generate 119.19% return on investment over 90 days.

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

Blue Coast Hotels  vs.  VIP Clothing 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 unsteady basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

VIP Clothing Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VIP Clothing Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, VIP Clothing is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Blue Coast and VIP Clothing

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

The idea behind Blue Coast Hotels and VIP Clothing 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.