Correlation Between InterContinental and Sovereign Metals

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

Diversification Opportunities for InterContinental and Sovereign Metals

0.82

Correlation Coefficient

InterContinental  Sovereign Metals

Very poor diversification

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

Pair Corralation between InterContinental and Sovereign Metals

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.37 times more return on investment than Sovereign Metals. However, InterContinental Hotels Group is 2.72 times less risky than Sovereign Metals. It trades about 0.39 of its potential returns per unit of risk. Sovereign Metals is currently generating about 0.12 per unit of risk. If you would invest  750,000  in InterContinental Hotels Group on September 4, 2024 and sell it today you would earn a total of  235,600  from holding InterContinental Hotels Group or generate 31.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

InterContinental Hotels Group  vs.  Sovereign Metals

InterContinental Hotels

Risk-Adjusted Performance

31 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 31 (%) 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.

Sovereign Metals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sovereign Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with InterContinental and Sovereign Metals

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

The idea behind InterContinental Hotels Group and Sovereign 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.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.