Correlation Between Datamatics Global and Lemon Tree

Can any of the company-specific risk be diversified away by investing in both Datamatics Global and Lemon Tree 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 Datamatics Global and Lemon Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Datamatics Global Services and Lemon Tree Hotels, you can compare the effects of market volatilities on Datamatics Global and Lemon Tree 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 Datamatics Global with a short position of Lemon Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datamatics Global and Lemon Tree.

Diversification Opportunities for Datamatics Global and Lemon Tree

0.76

Correlation Coefficient

Datamatics Global  Lemon Tree

Poor diversification

The 3 months correlation between Datamatics and Lemon is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Datamatics Global Services and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and Datamatics Global 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 Datamatics Global Services are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of Datamatics Global i.e., Datamatics Global and Lemon Tree go up and down completely randomly.

Pair Corralation between Datamatics Global and Lemon Tree

Assuming the 90 days trading horizon Datamatics Global is expected to generate 1.12 times less return on investment than Lemon Tree. In addition to that, Datamatics Global is 1.66 times more volatile than Lemon Tree Hotels. It trades about 0.31 of its total potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.57 per unit of volatility. If you would invest  13,282  in Lemon Tree Hotels on October 5, 2024 and sell it today you would earn a total of  2,620  from holding Lemon Tree Hotels or generate 19.73% return on investment over 90 days.

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

Datamatics Global Services  vs.  Lemon Tree Hotels

Datamatics Global

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datamatics Global Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Datamatics Global unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lemon Tree Hotels

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Datamatics Global and Lemon Tree

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

The idea behind Datamatics Global Services and Lemon Tree Hotels 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.