Correlation Between Lemon Tree and COSMO FIRST

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

Diversification Opportunities for Lemon Tree and COSMO FIRST

0.59

Correlation Coefficient

Lemon Tree  COSMO FIRST

Very weak diversification

The 3 months correlation between Lemon and COSMO is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and COSMO FIRST LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSMO FIRST 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 COSMO FIRST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSMO FIRST LIMITED has no effect on the direction of Lemon Tree i.e., Lemon Tree and COSMO FIRST go up and down completely randomly.

Pair Corralation between Lemon Tree and COSMO FIRST

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to under-perform the COSMO FIRST. But the stock apears to be less risky and, when comparing its historical volatility, Lemon Tree Hotels is 1.12 times less risky than COSMO FIRST. The stock trades about 0.0 of its potential returns per unit of risk. The COSMO FIRST LIMITED is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  78,080  in COSMO FIRST LIMITED on September 2, 2024 and sell it today you would earn a total of  80.00  from holding COSMO FIRST LIMITED or generate 0.1% return on investment over 90 days.

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

Lemon Tree Hotels  vs.  COSMO FIRST LIMITED

Lemon Tree Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lemon Tree Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Lemon Tree is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

COSMO FIRST LIMITED

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COSMO FIRST LIMITED has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, COSMO FIRST is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lemon Tree and COSMO FIRST

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

The idea behind Lemon Tree Hotels and COSMO FIRST 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.