Correlation Between Lemon Tree and Arvind

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

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

Diversification Opportunities for Lemon Tree and Arvind

0.89

Correlation Coefficient

Lemon Tree  Arvind

Very poor diversification

The 3 months correlation between Lemon and Arvind is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Arvind Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arvind Limited and Lemon Tree 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 Lemon Tree Hotels are associated (or correlated) with Arvind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arvind Limited has no effect on the direction of Lemon Tree i.e., Lemon Tree and Arvind go up and down completely randomly.

Pair Corralation between Lemon Tree and Arvind

Assuming the 90 days trading horizon Lemon Tree is expected to generate 3.25 times less return on investment than Arvind. But when comparing it to its historical volatility, Lemon Tree Hotels is 1.29 times less risky than Arvind. It trades about 0.02 of its potential returns per unit of risk. Arvind Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  29,378  in Arvind Limited on October 10, 2024 and sell it today you would earn a total of  11,582  from holding Arvind Limited or generate 39.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.18%
Values	Daily Returns

Lemon Tree Hotels  vs.  Arvind Limited

Lemon Tree Hotels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Arvind Limited

Risk-Adjusted Performance

5 of 100

OK

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

Pair Trading with Lemon Tree and Arvind

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

The idea behind Lemon Tree Hotels and Arvind 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.