Correlation Between Lemon Tree and WESTLIFE FOODWORLD

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

Diversification Opportunities for Lemon Tree and WESTLIFE FOODWORLD

0.03

Correlation Coefficient

Lemon Tree  WESTLIFE FOODWORLD

Significant diversification

The 3 months correlation between Lemon and WESTLIFE is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and WESTLIFE FOODWORLD LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTLIFE FOODWORLD 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 WESTLIFE FOODWORLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTLIFE FOODWORLD has no effect on the direction of Lemon Tree i.e., Lemon Tree and WESTLIFE FOODWORLD go up and down completely randomly.

Pair Corralation between Lemon Tree and WESTLIFE FOODWORLD

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to generate 1.1 times more return on investment than WESTLIFE FOODWORLD. However, Lemon Tree is 1.1 times more volatile than WESTLIFE FOODWORLD LIMITED. It trades about 0.07 of its potential returns per unit of risk. WESTLIFE FOODWORLD LIMITED is currently generating about 0.02 per unit of risk. If you would invest  7,955  in Lemon Tree Hotels on September 30, 2024 and sell it today you would earn a total of  6,995  from holding Lemon Tree Hotels or generate 87.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.39%
Values	Daily Returns

Lemon Tree Hotels  vs.  WESTLIFE FOODWORLD LIMITED

Lemon Tree Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 15 (%) 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.

WESTLIFE FOODWORLD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WESTLIFE FOODWORLD LIMITED has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lemon Tree and WESTLIFE FOODWORLD

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

The idea behind Lemon Tree Hotels and WESTLIFE FOODWORLD 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.