Correlation Between LH Hotel and Central Plaza

Can any of the company-specific risk be diversified away by investing in both LH Hotel and Central Plaza 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 LH Hotel and Central Plaza into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LH Hotel Leasehold and Central Plaza Hotel, you can compare the effects of market volatilities on LH Hotel and Central Plaza 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 LH Hotel with a short position of Central Plaza. Check out your portfolio center. Please also check ongoing floating volatility patterns of LH Hotel and Central Plaza.

Diversification Opportunities for LH Hotel and Central Plaza

-0.2

Correlation Coefficient

LH Hotel  Central Plaza

Good diversification

The 3 months correlation between LHHOTEL and Central is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding LH Hotel Leasehold and Central Plaza Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Plaza Hotel and LH Hotel 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 LH Hotel Leasehold are associated (or correlated) with Central Plaza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Plaza Hotel has no effect on the direction of LH Hotel i.e., LH Hotel and Central Plaza go up and down completely randomly.

Pair Corralation between LH Hotel and Central Plaza

Assuming the 90 days trading horizon LH Hotel Leasehold is expected to generate 0.37 times more return on investment than Central Plaza. However, LH Hotel Leasehold is 2.73 times less risky than Central Plaza. It trades about -0.05 of its potential returns per unit of risk. Central Plaza Hotel is currently generating about -0.26 per unit of risk. If you would invest  1,330  in LH Hotel Leasehold on October 22, 2024 and sell it today you would lose (10.00) from holding LH Hotel Leasehold or give up 0.75% of portfolio value over 90 days.

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

LH Hotel Leasehold  vs.  Central Plaza Hotel

LH Hotel Leasehold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LH Hotel Leasehold are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, LH Hotel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Central Plaza Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Plaza Hotel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LH Hotel and Central Plaza

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

The idea behind LH Hotel Leasehold and Central Plaza Hotel 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.