Correlation Between InterContinental and Derwent London

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

Diversification Opportunities for InterContinental and Derwent London

-0.39

Correlation Coefficient

InterContinental  Derwent London

Very good diversification

The 3 months correlation between InterContinental and Derwent is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Derwent London PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Derwent London PLC 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 Derwent London. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Derwent London PLC has no effect on the direction of InterContinental i.e., InterContinental and Derwent London go up and down completely randomly.

Pair Corralation between InterContinental and Derwent London

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.81 times more return on investment than Derwent London. However, InterContinental Hotels Group is 1.23 times less risky than Derwent London. It trades about 0.32 of its potential returns per unit of risk. Derwent London PLC is currently generating about -0.19 per unit of risk. If you would invest  850,600  in InterContinental Hotels Group on October 25, 2024 and sell it today you would earn a total of  207,400  from holding InterContinental Hotels Group or generate 24.38% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Derwent London PLC

InterContinental Hotels

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 25 (%) 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.

Derwent London PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Derwent London PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with InterContinental and Derwent London

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

The idea behind InterContinental Hotels Group and Derwent London PLC 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.