Correlation Between E Home and LuxUrban Hotels

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

By analyzing existing cross correlation between E Home Household Service and LuxUrban Hotels, you can compare the effects of market volatilities on E Home and LuxUrban 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 E Home with a short position of LuxUrban Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Home and LuxUrban Hotels.

Diversification Opportunities for E Home and LuxUrban Hotels

0.85

Correlation Coefficient

E Home  LuxUrban Hotels

Very poor diversification

The 3 months correlation between EJH and LuxUrban is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding E Home Household Service and LuxUrban Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LuxUrban Hotels and E Home 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 E Home Household Service are associated (or correlated) with LuxUrban Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LuxUrban Hotels has no effect on the direction of E Home i.e., E Home and LuxUrban Hotels go up and down completely randomly.

Pair Corralation between E Home and LuxUrban Hotels

Considering the 90-day investment horizon E Home Household Service is expected to under-perform the LuxUrban Hotels. In addition to that, E Home is 1.32 times more volatile than LuxUrban Hotels. It trades about -0.07 of its total potential returns per unit of risk. LuxUrban Hotels is currently generating about -0.08 per unit of volatility. If you would invest  12,215  in LuxUrban Hotels on October 7, 2024 and sell it today you would lose (12,124) from holding LuxUrban Hotels or give up 99.26% of portfolio value over 90 days.

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

E Home Household Service  vs.  LuxUrban Hotels

E Home Household

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E Home Household Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

LuxUrban Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LuxUrban Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with E Home and LuxUrban Hotels

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

The idea behind E Home Household Service and LuxUrban 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.