Correlation Between Lemon Tree and Privi Speciality

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

Diversification Opportunities for Lemon Tree and Privi Speciality

0.34
  Correlation Coefficient

Weak diversification

The 3 months correlation between Lemon and Privi is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Privi Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Privi Speciality Che 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 Privi Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Privi Speciality Che has no effect on the direction of Lemon Tree i.e., Lemon Tree and Privi Speciality go up and down completely randomly.

Pair Corralation between Lemon Tree and Privi Speciality

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to generate 0.83 times more return on investment than Privi Speciality. However, Lemon Tree Hotels is 1.2 times less risky than Privi Speciality. It trades about 0.5 of its potential returns per unit of risk. Privi Speciality Chemicals is currently generating about -0.09 per unit of risk. If you would invest  11,841  in Lemon Tree Hotels on October 8, 2024 and sell it today you would earn a total of  4,061  from holding Lemon Tree Hotels or generate 34.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Lemon Tree Hotels  vs.  Privi Speciality Chemicals

 Performance 
       Timeline  
Lemon Tree Hotels 

Risk-Adjusted Performance

24 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 24 (%) 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.
Privi Speciality Che 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Privi Speciality Chemicals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Privi Speciality exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lemon Tree and Privi Speciality Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lemon Tree and Privi Speciality

The main advantage of trading using opposite Lemon Tree and Privi Speciality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lemon Tree position performs unexpectedly, Privi Speciality 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 Privi Speciality will offset losses from the drop in Privi Speciality's long position.
The idea behind Lemon Tree Hotels and Privi Speciality Chemicals 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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