Correlation Between LH Hotel and Royal Orchid

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

Diversification Opportunities for LH Hotel and Royal Orchid

-0.18

Correlation Coefficient

LH Hotel  Royal Orchid

Good diversification

The 3 months correlation between LHHOTEL and Royal is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding LH Hotel Leasehold and Royal Orchid Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid 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 Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotel has no effect on the direction of LH Hotel i.e., LH Hotel and Royal Orchid go up and down completely randomly.

Pair Corralation between LH Hotel and Royal Orchid

Assuming the 90 days trading horizon LH Hotel Leasehold is expected to generate 0.32 times more return on investment than Royal Orchid. However, LH Hotel Leasehold is 3.08 times less risky than Royal Orchid. It trades about 0.15 of its potential returns per unit of risk. Royal Orchid Hotel is currently generating about -0.09 per unit of risk. If you would invest  1,313  in LH Hotel Leasehold on December 25, 2024 and sell it today you would earn a total of  107.00  from holding LH Hotel Leasehold or generate 8.15% return on investment over 90 days.

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

LH Hotel Leasehold  vs.  Royal Orchid Hotel

LH Hotel Leasehold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LH Hotel Leasehold are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, LH Hotel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Royal Orchid Hotel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Orchid 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 technical indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with LH Hotel and Royal Orchid

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

The idea behind LH Hotel Leasehold and Royal Orchid 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..