Correlation Between Investec PLC and City Lodge

Can any of the company-specific risk be diversified away by investing in both Investec PLC and City Lodge 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 Investec PLC and City Lodge into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Investec PLC and City Lodge

-0.6

Correlation Coefficient

Investec PLC  City Lodge

Excellent diversification

The 3 months correlation between Investec and City is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Investec PLC and City Lodge Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Lodge Hotels and Investec PLC 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 Investec PLC are associated (or correlated) with City Lodge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Lodge Hotels has no effect on the direction of Investec PLC i.e., Investec PLC and City Lodge go up and down completely randomly.

Pair Corralation between Investec PLC and City Lodge

Assuming the 90 days trading horizon Investec PLC is expected to under-perform the City Lodge. In addition to that, Investec PLC is 1.44 times more volatile than City Lodge Hotels. It trades about -0.23 of its total potential returns per unit of risk. City Lodge Hotels is currently generating about 0.03 per unit of volatility. If you would invest  48,000  in City Lodge Hotels on October 10, 2024 and sell it today you would earn a total of  500.00  from holding City Lodge Hotels or generate 1.04% return on investment over 90 days.

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

Investec PLC  vs.  City Lodge Hotels

Investec PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

City Lodge Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Investec PLC and City Lodge

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

The idea behind Investec PLC and City Lodge 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.