Correlation Between InterContinental and DISTRICT METALS

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

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

Diversification Opportunities for InterContinental and DISTRICT METALS

0.09

Correlation Coefficient

InterContinental  DISTRICT METALS

Significant diversification

The 3 months correlation between InterContinental and DISTRICT is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and DISTRICT METALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DISTRICT METALS and InterContinental 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 InterContinental Hotels Group are associated (or correlated) with DISTRICT METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DISTRICT METALS has no effect on the direction of InterContinental i.e., InterContinental and DISTRICT METALS go up and down completely randomly.

Pair Corralation between InterContinental and DISTRICT METALS

Assuming the 90 days trading horizon InterContinental is expected to generate 2.82 times less return on investment than DISTRICT METALS. But when comparing it to its historical volatility, InterContinental Hotels Group is 5.69 times less risky than DISTRICT METALS. It trades about 0.11 of its potential returns per unit of risk. DISTRICT METALS is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  12.00  in DISTRICT METALS on December 5, 2024 and sell it today you would earn a total of  10.00  from holding DISTRICT METALS or generate 83.33% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  DISTRICT METALS

InterContinental Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days InterContinental Hotels Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, InterContinental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

DISTRICT METALS

Risk-Adjusted Performance

Very Weak

Over the last 90 days DISTRICT METALS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DISTRICT METALS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with InterContinental and DISTRICT METALS

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

The idea behind InterContinental Hotels Group and DISTRICT METALS 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.