Correlation Between City Lodge and Mr Price

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

Diversification Opportunities for City Lodge and Mr Price

0.95

Correlation Coefficient

City Lodge  Mr Price

Almost no diversification

The 3 months correlation between City and MRP is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding City Lodge Hotels and Mr Price Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mr Price 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 Mr Price. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mr Price Group has no effect on the direction of City Lodge i.e., City Lodge and Mr Price go up and down completely randomly.

Pair Corralation between City Lodge and Mr Price

Assuming the 90 days trading horizon City Lodge Hotels is expected to under-perform the Mr Price. But the stock apears to be less risky and, when comparing its historical volatility, City Lodge Hotels is 1.18 times less risky than Mr Price. The stock trades about -0.24 of its potential returns per unit of risk. The Mr Price Group is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  2,886,900  in Mr Price Group on December 26, 2024 and sell it today you would lose (586,100) from holding Mr Price Group or give up 20.3% of portfolio value over 90 days.

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

City Lodge Hotels  vs.  Mr Price Group

City Lodge Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days City Lodge Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Mr Price Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mr Price Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with City Lodge and Mr Price

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

The idea behind City Lodge Hotels and Mr Price 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.