Correlation Between EIH Associated and ITI

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

By analyzing existing cross correlation between EIH Associated Hotels and ITI Limited, you can compare the effects of market volatilities on EIH Associated and ITI 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 EIH Associated with a short position of ITI. Check out your portfolio center. Please also check ongoing floating volatility patterns of EIH Associated and ITI.

Diversification Opportunities for EIH Associated and ITI

0.52

Correlation Coefficient

EIH Associated  ITI

Very weak diversification

The 3 months correlation between EIH and ITI is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding EIH Associated Hotels and ITI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITI Limited and EIH Associated 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 EIH Associated Hotels are associated (or correlated) with ITI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITI Limited has no effect on the direction of EIH Associated i.e., EIH Associated and ITI go up and down completely randomly.

Pair Corralation between EIH Associated and ITI

Assuming the 90 days trading horizon EIH Associated Hotels is expected to generate 1.97 times more return on investment than ITI. However, EIH Associated is 1.97 times more volatile than ITI Limited. It trades about 0.05 of its potential returns per unit of risk. ITI Limited is currently generating about 0.08 per unit of risk. If you would invest  18,700  in EIH Associated Hotels on October 27, 2024 and sell it today you would earn a total of  19,010  from holding EIH Associated Hotels or generate 101.66% return on investment over 90 days.

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

EIH Associated Hotels  vs.  ITI Limited

EIH Associated Hotels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EIH Associated Hotels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, EIH Associated may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ITI Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EIH Associated and ITI

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

The idea behind EIH Associated Hotels and ITI Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.