Correlation Between City Lodge and Master Drilling

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

Diversification Opportunities for City Lodge and Master Drilling

-0.31

Correlation Coefficient

City Lodge  Master Drilling

Very good diversification

The 3 months correlation between City and Master is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding City Lodge Hotels and Master Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Master Drilling Group 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 Master Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Master Drilling Group has no effect on the direction of City Lodge i.e., City Lodge and Master Drilling go up and down completely randomly.

Pair Corralation between City Lodge and Master Drilling

Assuming the 90 days trading horizon City Lodge Hotels is expected to generate 0.35 times more return on investment than Master Drilling. However, City Lodge Hotels is 2.86 times less risky than Master Drilling. It trades about 0.28 of its potential returns per unit of risk. Master Drilling Group is currently generating about -0.08 per unit of risk. If you would invest  48,500  in City Lodge Hotels on September 25, 2024 and sell it today you would earn a total of  2,200  from holding City Lodge Hotels or generate 4.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

City Lodge Hotels  vs.  Master Drilling Group

City Lodge Hotels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Lodge Hotels are ranked lower than 3 (%) 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.

Master Drilling Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Master Drilling Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Master Drilling is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with City Lodge and Master Drilling

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

The idea behind City Lodge Hotels and Master Drilling Group 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.