Correlation Between City Lodge and Netcare

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

Diversification Opportunities for City Lodge and Netcare

0.42

Correlation Coefficient

City Lodge  Netcare

Very weak diversification

The 3 months correlation between City and Netcare is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding City Lodge Hotels and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare 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 Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of City Lodge i.e., City Lodge and Netcare go up and down completely randomly.

Pair Corralation between City Lodge and Netcare

Assuming the 90 days trading horizon City Lodge Hotels is expected to generate 0.8 times more return on investment than Netcare. However, City Lodge Hotels is 1.24 times less risky than Netcare. It trades about 0.34 of its potential returns per unit of risk. Netcare is currently generating about -0.06 per unit of risk. If you would invest  48,500  in City Lodge Hotels on September 24, 2024 and sell it today you would earn a total of  2,500  from holding City Lodge Hotels or generate 5.15% return on investment over 90 days.

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

City Lodge Hotels  vs.  Netcare

City Lodge Hotels

Risk-Adjusted Performance

4 of 100

OK

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.

Netcare

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Netcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Netcare 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 Netcare

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

The idea behind City Lodge Hotels and Netcare 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 Stocks Directory module to find actively traded stocks across global markets.