Correlation Between Nazara Technologies and Lemon Tree

Can any of the company-specific risk be diversified away by investing in both Nazara Technologies and Lemon Tree 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 Nazara Technologies and Lemon Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nazara Technologies Limited and Lemon Tree Hotels, you can compare the effects of market volatilities on Nazara Technologies and Lemon Tree 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 Nazara Technologies with a short position of Lemon Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nazara Technologies and Lemon Tree.

Diversification Opportunities for Nazara Technologies and Lemon Tree

0.77

Correlation Coefficient

Nazara Technologies  Lemon Tree

Poor diversification

The 3 months correlation between Nazara and Lemon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Nazara Technologies Limited and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and Nazara Technologies 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 Nazara Technologies Limited are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of Nazara Technologies i.e., Nazara Technologies and Lemon Tree go up and down completely randomly.

Pair Corralation between Nazara Technologies and Lemon Tree

Assuming the 90 days trading horizon Nazara Technologies Limited is expected to under-perform the Lemon Tree. In addition to that, Nazara Technologies is 1.01 times more volatile than Lemon Tree Hotels. It trades about -0.1 of its total potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.42 per unit of volatility. If you would invest  14,100  in Lemon Tree Hotels on October 8, 2024 and sell it today you would earn a total of  1,802  from holding Lemon Tree Hotels or generate 12.78% return on investment over 90 days.

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

Nazara Technologies Limited  vs.  Lemon Tree Hotels

Nazara Technologies

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nazara Technologies Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Nazara Technologies may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lemon Tree Hotels

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nazara Technologies and Lemon Tree

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

The idea behind Nazara Technologies Limited and Lemon Tree 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.