Correlation Between InterContinental and Auction Technology

Can any of the company-specific risk be diversified away by investing in both InterContinental and Auction Technology 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 Auction Technology 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 Auction Technology Group, you can compare the effects of market volatilities on InterContinental and Auction Technology 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 Auction Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of InterContinental and Auction Technology.

Diversification Opportunities for InterContinental and Auction Technology

0.82

Correlation Coefficient

InterContinental  Auction Technology

Very poor diversification

The 3 months correlation between InterContinental and Auction is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Auction Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auction Technology 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 Auction Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auction Technology has no effect on the direction of InterContinental i.e., InterContinental and Auction Technology go up and down completely randomly.

Pair Corralation between InterContinental and Auction Technology

Assuming the 90 days trading horizon InterContinental is expected to generate 1.63 times less return on investment than Auction Technology. But when comparing it to its historical volatility, InterContinental Hotels Group is 2.46 times less risky than Auction Technology. It trades about 0.31 of its potential returns per unit of risk. Auction Technology Group is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  39,850  in Auction Technology Group on September 16, 2024 and sell it today you would earn a total of  17,650  from holding Auction Technology Group or generate 44.29% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Auction Technology Group

InterContinental Hotels

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

Auction Technology

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Auction Technology Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Auction Technology exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with InterContinental and Auction Technology

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

The idea behind InterContinental Hotels Group and Auction Technology Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.