Correlation Between Eden Hotel and Dolphin Hotels

Can any of the company-specific risk be diversified away by investing in both Eden Hotel and Dolphin Hotels 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 Eden Hotel and Dolphin Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eden Hotel Lanka and Dolphin Hotels PLC, you can compare the effects of market volatilities on Eden Hotel and Dolphin Hotels 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 Eden Hotel with a short position of Dolphin Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eden Hotel and Dolphin Hotels.

Diversification Opportunities for Eden Hotel and Dolphin Hotels

0.94

Correlation Coefficient

Eden Hotel  Dolphin Hotels

Almost no diversification

The 3 months correlation between Eden and Dolphin is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Dolphin Hotels PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dolphin Hotels PLC and Eden Hotel 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 Eden Hotel Lanka are associated (or correlated) with Dolphin Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dolphin Hotels PLC has no effect on the direction of Eden Hotel i.e., Eden Hotel and Dolphin Hotels go up and down completely randomly.

Pair Corralation between Eden Hotel and Dolphin Hotels

Assuming the 90 days trading horizon Eden Hotel is expected to generate 2.74 times less return on investment than Dolphin Hotels. But when comparing it to its historical volatility, Eden Hotel Lanka is 1.21 times less risky than Dolphin Hotels. It trades about 0.12 of its potential returns per unit of risk. Dolphin Hotels PLC is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  3,720  in Dolphin Hotels PLC on October 20, 2024 and sell it today you would earn a total of  1,800  from holding Dolphin Hotels PLC or generate 48.39% return on investment over 90 days.

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

Eden Hotel Lanka  vs.  Dolphin Hotels PLC

Eden Hotel Lanka

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eden Hotel Lanka are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eden Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Dolphin Hotels PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dolphin Hotels PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dolphin Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eden Hotel and Dolphin Hotels

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

The idea behind Eden Hotel Lanka and Dolphin Hotels PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.