Correlation Between City Lodge and We Buy

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

Diversification Opportunities for City Lodge and We Buy

0.27

Correlation Coefficient

City Lodge  We Buy

Modest diversification

The 3 months correlation between City and WBC is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding City Lodge Hotels and We Buy Cars in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on We Buy Cars 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 We Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of We Buy Cars has no effect on the direction of City Lodge i.e., City Lodge and We Buy go up and down completely randomly.

Pair Corralation between City Lodge and We Buy

Assuming the 90 days trading horizon City Lodge is expected to generate 20.85 times less return on investment than We Buy. But when comparing it to its historical volatility, City Lodge Hotels is 1.12 times less risky than We Buy. It trades about 0.01 of its potential returns per unit of risk. We Buy Cars is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  202,891  in We Buy Cars on September 23, 2024 and sell it today you would earn a total of  227,209  from holding We Buy Cars or generate 111.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	35.83%
Values	Daily Returns

City Lodge Hotels  vs.  We Buy Cars

City Lodge Hotels

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Lodge Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, City Lodge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

We Buy Cars

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in We Buy Cars are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, We Buy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with City Lodge and We Buy

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

The idea behind City Lodge Hotels and We Buy Cars 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.