Correlation Between NIGERIAN EXCHANGE and IKEJA HOTELS

Can any of the company-specific risk be diversified away by investing in both NIGERIAN EXCHANGE and IKEJA 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 NIGERIAN EXCHANGE and IKEJA HOTELS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NIGERIAN EXCHANGE GROUP and IKEJA HOTELS PLC, you can compare the effects of market volatilities on NIGERIAN EXCHANGE and IKEJA 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 NIGERIAN EXCHANGE with a short position of IKEJA HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIGERIAN EXCHANGE and IKEJA HOTELS.

Diversification Opportunities for NIGERIAN EXCHANGE and IKEJA HOTELS

0.75

Correlation Coefficient

NIGERIAN EXCHANGE  IKEJA HOTELS

Poor diversification

The 3 months correlation between NIGERIAN and IKEJA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NIGERIAN EXCHANGE GROUP and IKEJA HOTELS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IKEJA HOTELS PLC and NIGERIAN EXCHANGE 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 NIGERIAN EXCHANGE GROUP are associated (or correlated) with IKEJA HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IKEJA HOTELS PLC has no effect on the direction of NIGERIAN EXCHANGE i.e., NIGERIAN EXCHANGE and IKEJA HOTELS go up and down completely randomly.

Pair Corralation between NIGERIAN EXCHANGE and IKEJA HOTELS

Assuming the 90 days trading horizon NIGERIAN EXCHANGE GROUP is expected to generate 1.29 times more return on investment than IKEJA HOTELS. However, NIGERIAN EXCHANGE is 1.29 times more volatile than IKEJA HOTELS PLC. It trades about 0.07 of its potential returns per unit of risk. IKEJA HOTELS PLC is currently generating about 0.05 per unit of risk. If you would invest  2,275  in NIGERIAN EXCHANGE GROUP on August 31, 2024 and sell it today you would earn a total of  235.00  from holding NIGERIAN EXCHANGE GROUP or generate 10.33% return on investment over 90 days.

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

NIGERIAN EXCHANGE GROUP  vs.  IKEJA HOTELS PLC

NIGERIAN EXCHANGE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NIGERIAN EXCHANGE GROUP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, NIGERIAN EXCHANGE unveiled solid returns over the last few months and may actually be approaching a breakup point.

IKEJA HOTELS PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IKEJA HOTELS PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, IKEJA HOTELS may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with NIGERIAN EXCHANGE and IKEJA HOTELS

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

The idea behind NIGERIAN EXCHANGE GROUP and IKEJA HOTELS PLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.