Correlation Between Lemon Tree and JSW Holdings

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

Diversification Opportunities for Lemon Tree and JSW Holdings

-0.27

Correlation Coefficient

Lemon Tree  JSW Holdings

Very good diversification

The 3 months correlation between Lemon and JSW is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and JSW Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSW Holdings 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 JSW Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSW Holdings Limited has no effect on the direction of Lemon Tree i.e., Lemon Tree and JSW Holdings go up and down completely randomly.

Pair Corralation between Lemon Tree and JSW Holdings

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to under-perform the JSW Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Lemon Tree Hotels is 1.25 times less risky than JSW Holdings. The stock trades about -0.04 of its potential returns per unit of risk. The JSW Holdings Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,447,235  in JSW Holdings Limited on December 26, 2024 and sell it today you would earn a total of  798,740  from holding JSW Holdings Limited or generate 55.19% return on investment over 90 days.

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

Lemon Tree Hotels  vs.  JSW Holdings Limited

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 latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

JSW Holdings Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Holdings Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, JSW Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lemon Tree and JSW Holdings

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

The idea behind Lemon Tree Hotels and JSW Holdings 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.