Correlation Between Lemon Tree and Touchwood Entertainment

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

Diversification Opportunities for Lemon Tree and Touchwood Entertainment

0.13

Correlation Coefficient

Lemon Tree  Touchwood Entertainment

Average diversification

The 3 months correlation between Lemon and Touchwood is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Touchwood Entertainment Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchwood Entertainment 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 Touchwood Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchwood Entertainment has no effect on the direction of Lemon Tree i.e., Lemon Tree and Touchwood Entertainment go up and down completely randomly.

Pair Corralation between Lemon Tree and Touchwood Entertainment

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to generate 0.69 times more return on investment than Touchwood Entertainment. However, Lemon Tree Hotels is 1.45 times less risky than Touchwood Entertainment. It trades about 0.01 of its potential returns per unit of risk. Touchwood Entertainment Limited is currently generating about -0.06 per unit of risk. If you would invest  13,116  in Lemon Tree Hotels on September 5, 2024 and sell it today you would lose (19.00) from holding Lemon Tree Hotels or give up 0.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Lemon Tree Hotels  vs.  Touchwood Entertainment Limite

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

Touchwood Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchwood Entertainment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Lemon Tree and Touchwood Entertainment

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

The idea behind Lemon Tree Hotels and Touchwood Entertainment 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.