Correlation Between Consolidated Construction and Speciality Restaurants

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

By analyzing existing cross correlation between Consolidated Construction Consortium and Speciality Restaurants Limited, you can compare the effects of market volatilities on Consolidated Construction and Speciality Restaurants 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 Consolidated Construction with a short position of Speciality Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Construction and Speciality Restaurants.

Diversification Opportunities for Consolidated Construction and Speciality Restaurants

0.21

Correlation Coefficient

Consolidated Construction  Speciality Restaurants

Modest diversification

The 3 months correlation between Consolidated and Speciality is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Construction Cons and Speciality Restaurants Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Speciality Restaurants and Consolidated Construction 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 Consolidated Construction Consortium are associated (or correlated) with Speciality Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Speciality Restaurants has no effect on the direction of Consolidated Construction i.e., Consolidated Construction and Speciality Restaurants go up and down completely randomly.

Pair Corralation between Consolidated Construction and Speciality Restaurants

Assuming the 90 days trading horizon Consolidated Construction Consortium is expected to generate 1.08 times more return on investment than Speciality Restaurants. However, Consolidated Construction is 1.08 times more volatile than Speciality Restaurants Limited. It trades about -0.01 of its potential returns per unit of risk. Speciality Restaurants Limited is currently generating about -0.03 per unit of risk. If you would invest  1,530  in Consolidated Construction Consortium on December 29, 2024 and sell it today you would lose (96.00) from holding Consolidated Construction Consortium or give up 6.27% of portfolio value over 90 days.

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

Consolidated Construction Cons  vs.  Speciality Restaurants Limited

Consolidated Construction

Risk-Adjusted Performance

Very Weak

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

Speciality Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days Speciality Restaurants Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Speciality Restaurants is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Consolidated Construction and Speciality Restaurants

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

The idea behind Consolidated Construction Consortium and Speciality Restaurants 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.