Correlation Between Lemon Tree and Salzer Electronics

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

Diversification Opportunities for Lemon Tree and Salzer Electronics

0.9

Correlation Coefficient

Lemon Tree  Salzer Electronics

Almost no diversification

The 3 months correlation between Lemon and Salzer is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Salzer Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salzer Electronics 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 Salzer Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salzer Electronics has no effect on the direction of Lemon Tree i.e., Lemon Tree and Salzer Electronics go up and down completely randomly.

Pair Corralation between Lemon Tree and Salzer Electronics

Assuming the 90 days trading horizon Lemon Tree is expected to generate 2.37 times less return on investment than Salzer Electronics. But when comparing it to its historical volatility, Lemon Tree Hotels is 2.11 times less risky than Salzer Electronics. It trades about 0.21 of its potential returns per unit of risk. Salzer Electronics Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  91,885  in Salzer Electronics Limited on September 26, 2024 and sell it today you would earn a total of  58,700  from holding Salzer Electronics Limited or generate 63.88% return on investment over 90 days.

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

Lemon Tree Hotels  vs.  Salzer Electronics Limited

Lemon Tree Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Salzer Electronics

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Salzer Electronics Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, Salzer Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lemon Tree and Salzer Electronics

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

The idea behind Lemon Tree Hotels and Salzer Electronics 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.