Correlation Between City Lodge and Quantum Foods

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

Diversification Opportunities for City Lodge and Quantum Foods

0.91

Correlation Coefficient

City Lodge  Quantum Foods

Almost no diversification

The 3 months correlation between City and Quantum is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding City Lodge Hotels and Quantum Foods Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantum Foods Holdings 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 Quantum Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantum Foods Holdings has no effect on the direction of City Lodge i.e., City Lodge and Quantum Foods go up and down completely randomly.

Pair Corralation between City Lodge and Quantum Foods

Assuming the 90 days trading horizon City Lodge Hotels is expected to under-perform the Quantum Foods. But the stock apears to be less risky and, when comparing its historical volatility, City Lodge Hotels is 3.55 times less risky than Quantum Foods. The stock trades about -0.23 of its potential returns per unit of risk. The Quantum Foods Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  90,600  in Quantum Foods Holdings on December 21, 2024 and sell it today you would lose (10,900) from holding Quantum Foods Holdings or give up 12.03% 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.  Quantum Foods Holdings

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 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.

Quantum Foods Holdings

Risk-Adjusted Performance

Very Weak

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

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

The idea behind City Lodge Hotels and Quantum Foods Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.