Correlation Between Generic Engineering and Royal Orchid

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

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

Diversification Opportunities for Generic Engineering and Royal Orchid

0.8

Correlation Coefficient

Generic Engineering  Royal Orchid

Very poor diversification

The 3 months correlation between Generic and Royal is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Generic Engineering Constructi 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 Generic Engineering 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 Generic Engineering Construction 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 Generic Engineering i.e., Generic Engineering and Royal Orchid go up and down completely randomly.

Pair Corralation between Generic Engineering and Royal Orchid

Assuming the 90 days trading horizon Generic Engineering is expected to generate 1.07 times less return on investment than Royal Orchid. In addition to that, Generic Engineering is 1.49 times more volatile than Royal Orchid Hotels. It trades about 0.05 of its total potential returns per unit of risk. Royal Orchid Hotels is currently generating about 0.08 per unit of volatility. If you would invest  33,930  in Royal Orchid Hotels on October 5, 2024 and sell it today you would earn a total of  3,285  from holding Royal Orchid Hotels or generate 9.68% return on investment over 90 days.

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

Generic Engineering Constructi  vs.  Royal Orchid Hotels

Generic Engineering

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Generic Engineering Construction are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Generic Engineering may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Royal Orchid Hotels

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent essential indicators, Royal Orchid may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Generic Engineering and Royal Orchid

The main advantage of trading using opposite Generic Engineering and Royal Orchid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Generic Engineering 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 Generic Engineering Construction 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.