Correlation Between Lighthouse Hotel and Renuka City

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

Diversification Opportunities for Lighthouse Hotel and Renuka City

0.05

Correlation Coefficient

Lighthouse Hotel  Renuka City

Significant diversification

The 3 months correlation between Lighthouse and Renuka is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Lighthouse Hotel PLC and Renuka City Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renuka City Hotel 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 Renuka City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renuka City Hotel has no effect on the direction of Lighthouse Hotel i.e., Lighthouse Hotel and Renuka City go up and down completely randomly.

Pair Corralation between Lighthouse Hotel and Renuka City

Assuming the 90 days trading horizon Lighthouse Hotel PLC is expected to under-perform the Renuka City. But the stock apears to be less risky and, when comparing its historical volatility, Lighthouse Hotel PLC is 1.2 times less risky than Renuka City. The stock trades about -0.07 of its potential returns per unit of risk. The Renuka City Hotel is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  41,200  in Renuka City Hotel on December 27, 2024 and sell it today you would earn a total of  6,350  from holding Renuka City Hotel or generate 15.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.18%
Values	Daily Returns

Lighthouse Hotel PLC  vs.  Renuka City Hotel

Lighthouse Hotel PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lighthouse Hotel PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Renuka City Hotel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Renuka City Hotel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Renuka City sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lighthouse Hotel and Renuka City

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

The idea behind Lighthouse Hotel PLC and Renuka City 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..