Correlation Between Parx Plastics and Covivio Hotels

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

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

Diversification Opportunities for Parx Plastics and Covivio Hotels

0.16

Correlation Coefficient

Parx Plastics  Covivio Hotels

Average diversification

The 3 months correlation between Parx and Covivio is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Parx Plastics NV and Covivio Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covivio Hotels and Parx Plastics 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 Parx Plastics NV 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 Parx Plastics i.e., Parx Plastics and Covivio Hotels go up and down completely randomly.

Pair Corralation between Parx Plastics and Covivio Hotels

Assuming the 90 days trading horizon Parx Plastics NV is expected to generate 2.5 times more return on investment than Covivio Hotels. However, Parx Plastics is 2.5 times more volatile than Covivio Hotels. It trades about 0.2 of its potential returns per unit of risk. Covivio Hotels is currently generating about 0.13 per unit of risk. If you would invest  20.00  in Parx Plastics NV on October 10, 2024 and sell it today you would earn a total of  9.00  from holding Parx Plastics NV or generate 45.0% return on investment over 90 days.

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

Parx Plastics NV  vs.  Covivio Hotels

Parx Plastics NV

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Parx Plastics NV are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Parx Plastics reported solid returns over the last few months and may actually be approaching a breakup point.

Covivio Hotels

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covivio Hotels are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Covivio Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Parx Plastics and Covivio Hotels

The main advantage of trading using opposite Parx Plastics and Covivio Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Parx Plastics 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 Parx Plastics NV 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.