Correlation Between InterContinental and London Stock

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

Diversification Opportunities for InterContinental and London Stock

InterContinentalLondonDiversified AwayInterContinentalLondonDiversified Away100%
0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between InterContinental and London is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange 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 London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of InterContinental i.e., InterContinental and London Stock go up and down completely randomly.

Pair Corralation between InterContinental and London Stock

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 1.31 times more return on investment than London Stock. However, InterContinental is 1.31 times more volatile than London Stock Exchange. It trades about 0.21 of its potential returns per unit of risk. London Stock Exchange is currently generating about 0.2 per unit of risk. If you would invest  845,400  in InterContinental Hotels Group on October 9, 2024 and sell it today you would earn a total of  135,000  from holding InterContinental Hotels Group or generate 15.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

InterContinental Hotels Group  vs.  London Stock Exchange

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 0510152025
JavaScript chart by amCharts 3.21.15IHG LSEG
       Timeline  
InterContinental Hotels 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels 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, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan8,5009,0009,50010,000
London Stock Exchange 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in February 2025.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan10,20010,40010,60010,80011,00011,20011,40011,600

InterContinental and London Stock Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.39-2.54-1.69-0.840.00.951.932.93.87 0.10.20.30.40.5
JavaScript chart by amCharts 3.21.15IHG LSEG
       Returns  

Pair Trading with InterContinental and London Stock

The main advantage of trading using opposite InterContinental and London Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental position performs unexpectedly, London Stock 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 London Stock will offset losses from the drop in London Stock's long position.
The idea behind InterContinental Hotels Group and London Stock Exchange 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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