Correlation Between GM Breweries and Chalet Hotels

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

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

Diversification Opportunities for GM Breweries and Chalet Hotels

0.32

Correlation Coefficient

GM Breweries  Chalet Hotels

Weak diversification

The 3 months correlation between GMBREW and Chalet is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Chalet Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chalet Hotels Limited and GM Breweries 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 GM Breweries Limited are associated (or correlated) with Chalet Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chalet Hotels Limited has no effect on the direction of GM Breweries i.e., GM Breweries and Chalet Hotels go up and down completely randomly.

Pair Corralation between GM Breweries and Chalet Hotels

Assuming the 90 days trading horizon GM Breweries is expected to generate 3.6 times less return on investment than Chalet Hotels. But when comparing it to its historical volatility, GM Breweries Limited is 1.29 times less risky than Chalet Hotels. It trades about 0.05 of its potential returns per unit of risk. Chalet Hotels Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  86,165  in Chalet Hotels Limited on October 6, 2024 and sell it today you would earn a total of  13,110  from holding Chalet Hotels Limited or generate 15.21% return on investment over 90 days.

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

GM Breweries Limited  vs.  Chalet Hotels Limited

GM Breweries Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GM Breweries Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Chalet Hotels Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chalet Hotels Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Chalet Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM Breweries and Chalet Hotels

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

The idea behind GM Breweries Limited and Chalet Hotels 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.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.