Correlation Between Indian Hotels and Thermax

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

Diversification Opportunities for Indian Hotels and Thermax

-0.66

Correlation Coefficient

Indian Hotels  Thermax

Excellent diversification

The 3 months correlation between Indian and Thermax is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding The Indian Hotels and Thermax Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermax Limited 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 Thermax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermax Limited has no effect on the direction of Indian Hotels i.e., Indian Hotels and Thermax go up and down completely randomly.

Pair Corralation between Indian Hotels and Thermax

Assuming the 90 days trading horizon The Indian Hotels is expected to generate 0.88 times more return on investment than Thermax. However, The Indian Hotels is 1.14 times less risky than Thermax. It trades about 0.21 of its potential returns per unit of risk. Thermax Limited is currently generating about -0.03 per unit of risk. If you would invest  68,140  in The Indian Hotels on September 18, 2024 and sell it today you would earn a total of  18,625  from holding The Indian Hotels or generate 27.33% return on investment over 90 days.

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

The Indian Hotels  vs.  Thermax Limited

Indian Hotels

Risk-Adjusted Performance

16 of 100

Solid

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

Thermax Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermax Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Thermax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Indian Hotels and Thermax

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

The idea behind The Indian Hotels and Thermax Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.