Correlation Between Future Retail and Royal Orchid

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

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

Diversification Opportunities for Future Retail and Royal Orchid

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Correlation Coefficient

Future Retail  Royal Orchid

Pay attention - limited upside

The 3 months correlation between Future and Royal is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Future Retail Limited and Royal Orchid Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid Hotels and Future Retail 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 Future Retail Limited are associated (or correlated) with Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotels has no effect on the direction of Future Retail i.e., Future Retail and Royal Orchid go up and down completely randomly.

Pair Corralation between Future Retail and Royal Orchid

Assuming the 90 days trading horizon Future Retail Limited is expected to under-perform the Royal Orchid. But the stock apears to be less risky and, when comparing its historical volatility, Future Retail Limited is 1.07 times less risky than Royal Orchid. The stock trades about -0.04 of its potential returns per unit of risk. The Royal Orchid Hotels is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  24,577  in Royal Orchid Hotels on October 3, 2024 and sell it today you would earn a total of  11,028  from holding Royal Orchid Hotels or generate 44.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	89.9%
Values	Daily Returns

Future Retail Limited  vs.  Royal Orchid Hotels

Future Retail Limited

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Future Retail Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Future Retail is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Royal Orchid Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Orchid Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Royal Orchid is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Future Retail and Royal Orchid

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

The idea behind Future Retail Limited and Royal Orchid 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.