Correlation Between Lighthouse Hotel and E M

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

By analyzing existing cross correlation between Lighthouse Hotel PLC and E M L, you can compare the effects of market volatilities on Lighthouse Hotel and E M 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 Lighthouse Hotel with a short position of E M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lighthouse Hotel and E M.

Diversification Opportunities for Lighthouse Hotel and E M

0.62

Correlation Coefficient

Lighthouse Hotel  E M

Poor diversification

The 3 months correlation between Lighthouse and EMLN0000 is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lighthouse Hotel PLC and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L and Lighthouse 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 Lighthouse Hotel PLC are associated (or correlated) with E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Lighthouse Hotel i.e., Lighthouse Hotel and E M go up and down completely randomly.

Pair Corralation between Lighthouse Hotel and E M

Assuming the 90 days trading horizon Lighthouse Hotel PLC is expected to generate 0.97 times more return on investment than E M. However, Lighthouse Hotel PLC is 1.03 times less risky than E M. It trades about 0.08 of its potential returns per unit of risk. E M L is currently generating about 0.01 per unit of risk. If you would invest  2,790  in Lighthouse Hotel PLC on September 30, 2024 and sell it today you would earn a total of  3,730  from holding Lighthouse Hotel PLC or generate 133.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.5%
Values	Daily Returns

Lighthouse Hotel PLC  vs.  E M L

Lighthouse Hotel PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lighthouse Hotel PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lighthouse Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

E M L

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lighthouse Hotel and E M

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

The idea behind Lighthouse Hotel PLC and E M L 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.