Correlation Between Lemon Tree and Embassy Office

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

Diversification Opportunities for Lemon Tree and Embassy Office

0.43

Correlation Coefficient

Lemon Tree  Embassy Office

Very weak diversification

The 3 months correlation between Lemon and Embassy is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Embassy Office Parks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embassy Office Parks 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 Embassy Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embassy Office Parks has no effect on the direction of Lemon Tree i.e., Lemon Tree and Embassy Office go up and down completely randomly.

Pair Corralation between Lemon Tree and Embassy Office

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to under-perform the Embassy Office. In addition to that, Lemon Tree is 1.96 times more volatile than Embassy Office Parks. It trades about -0.03 of its total potential returns per unit of risk. Embassy Office Parks is currently generating about -0.01 per unit of volatility. If you would invest  36,990  in Embassy Office Parks on December 1, 2024 and sell it today you would lose (566.00) from holding Embassy Office Parks or give up 1.53% of portfolio value over 90 days.

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

Lemon Tree Hotels  vs.  Embassy Office Parks

Lemon Tree Hotels

Risk-Adjusted Performance

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 current stock price agitation, may contribute to short-term losses for the retail investors.

Embassy Office Parks

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Lemon Tree and Embassy Office

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

The idea behind Lemon Tree Hotels and Embassy Office Parks 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.