Correlation Between City Lodge and Famous Brands

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

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

Diversification Opportunities for City Lodge and Famous Brands

0.75

Correlation Coefficient

City Lodge  Famous Brands

Poor diversification

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

Pair Corralation between City Lodge and Famous Brands

Assuming the 90 days trading horizon City Lodge Hotels is expected to under-perform the Famous Brands. But the stock apears to be less risky and, when comparing its historical volatility, City Lodge Hotels is 1.68 times less risky than Famous Brands. The stock trades about -0.21 of its potential returns per unit of risk. The Famous Brands is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  696,700  in Famous Brands on October 8, 2024 and sell it today you would lose (10,000) from holding Famous Brands or give up 1.44% of portfolio value over 90 days.

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

City Lodge Hotels  vs.  Famous Brands

City Lodge Hotels

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Lodge Hotels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, City Lodge is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Famous Brands

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Famous Brands are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Famous Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with City Lodge and Famous Brands

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

The idea behind City Lodge Hotels and Famous Brands 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.