Correlation Between Indian Hotels and Royal Orchid

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

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

Diversification Opportunities for Indian Hotels and Royal Orchid

0.1

Correlation Coefficient

Indian Hotels  Royal Orchid

Average diversification

The 3 months correlation between Indian and Royal is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding The Indian Hotels and Royal Orchid Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid Hotels and Indian Hotels 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 The Indian Hotels are associated (or correlated) with Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotels has no effect on the direction of Indian Hotels i.e., Indian Hotels and Royal Orchid go up and down completely randomly.

Pair Corralation between Indian Hotels and Royal Orchid

Assuming the 90 days trading horizon The Indian Hotels is expected to under-perform the Royal Orchid. But the stock apears to be less risky and, when comparing its historical volatility, The Indian Hotels is 1.29 times less risky than Royal Orchid. The stock trades about -0.02 of its potential returns per unit of risk. The Royal Orchid Hotels is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  36,255  in Royal Orchid Hotels on December 26, 2024 and sell it today you would earn a total of  4,265  from holding Royal Orchid Hotels or generate 11.76% return on investment over 90 days.

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

The Indian Hotels  vs.  Royal Orchid Hotels

Indian Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Indian Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Indian Hotels is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Royal Orchid Hotels

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Royal Orchid sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Hotels and Royal Orchid

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

The idea behind The Indian Hotels and Royal Orchid Hotels 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.