Correlation Between Heritage Foods and Chalet Hotels

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

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

Diversification Opportunities for Heritage Foods and Chalet Hotels

-0.29

Correlation Coefficient

Heritage Foods  Chalet Hotels

Very good diversification

The 3 months correlation between Heritage and Chalet is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Foods 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 Heritage Foods 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 Heritage Foods 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 Heritage Foods i.e., Heritage Foods and Chalet Hotels go up and down completely randomly.

Pair Corralation between Heritage Foods and Chalet Hotels

Assuming the 90 days trading horizon Heritage Foods Limited is expected to under-perform the Chalet Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Heritage Foods Limited is 2.04 times less risky than Chalet Hotels. The stock trades about -0.11 of its potential returns per unit of risk. The Chalet Hotels Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  88,990  in Chalet Hotels Limited on October 4, 2024 and sell it today you would earn a total of  11,955  from holding Chalet Hotels Limited or generate 13.43% return on investment over 90 days.

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

Heritage Foods Limited  vs.  Chalet Hotels Limited

Heritage Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Chalet Hotels Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chalet Hotels Limited are ranked lower than 7 (%) 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 Heritage Foods and Chalet Hotels

The main advantage of trading using opposite Heritage Foods and Chalet Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage Foods 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 Heritage Foods 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.