Correlation Between Hotel Majestic and Covivio Hotels

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

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

Diversification Opportunities for Hotel Majestic and Covivio Hotels

0.25

Correlation Coefficient

Hotel Majestic  Covivio Hotels

Modest diversification

The 3 months correlation between Hotel and Covivio is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hotel Majestic Cannes and Covivio Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covivio Hotels and Hotel Majestic 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 Hotel Majestic Cannes are associated (or correlated) with Covivio Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covivio Hotels has no effect on the direction of Hotel Majestic i.e., Hotel Majestic and Covivio Hotels go up and down completely randomly.

Pair Corralation between Hotel Majestic and Covivio Hotels

Assuming the 90 days trading horizon Hotel Majestic Cannes is expected to under-perform the Covivio Hotels. In addition to that, Hotel Majestic is 1.69 times more volatile than Covivio Hotels. It trades about -0.04 of its total potential returns per unit of risk. Covivio Hotels is currently generating about 0.06 per unit of volatility. If you would invest  1,795  in Covivio Hotels on September 17, 2024 and sell it today you would earn a total of  65.00  from holding Covivio Hotels or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Hotel Majestic Cannes  vs.  Covivio Hotels

Hotel Majestic Cannes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotel Majestic Cannes has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Hotel Majestic is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Covivio Hotels

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Covivio Hotels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Covivio Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hotel Majestic and Covivio Hotels

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

The idea behind Hotel Majestic Cannes and Covivio Hotels 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.