Correlation Between City Lodge and Remgro

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

Diversification Opportunities for City Lodge and Remgro

0.68

Correlation Coefficient

City Lodge  Remgro

Poor diversification

The 3 months correlation between City and Remgro is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding City Lodge Hotels and Remgro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Remgro 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 Remgro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Remgro has no effect on the direction of City Lodge i.e., City Lodge and Remgro go up and down completely randomly.

Pair Corralation between City Lodge and Remgro

Assuming the 90 days trading horizon City Lodge is expected to generate 2.6 times less return on investment than Remgro. In addition to that, City Lodge is 1.16 times more volatile than Remgro. It trades about 0.01 of its total potential returns per unit of risk. Remgro is currently generating about 0.03 per unit of volatility. If you would invest  1,301,568  in Remgro on December 21, 2024 and sell it today you would earn a total of  225,432  from holding Remgro or generate 17.32% return on investment over 90 days.

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

City Lodge Hotels  vs.  Remgro

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.

Remgro

Risk-Adjusted Performance

Very Weak

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

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

The idea behind City Lodge Hotels and Remgro 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.