Correlation Between Oriental Hotels and CEAT

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

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

Diversification Opportunities for Oriental Hotels and CEAT

0.46

Correlation Coefficient

Oriental Hotels  CEAT

Very weak diversification

The 3 months correlation between Oriental and CEAT is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Hotels Limited and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Oriental Hotels 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 Oriental Hotels Limited are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Oriental Hotels i.e., Oriental Hotels and CEAT go up and down completely randomly.

Pair Corralation between Oriental Hotels and CEAT

Assuming the 90 days trading horizon Oriental Hotels is expected to generate 77.77 times less return on investment than CEAT. But when comparing it to its historical volatility, Oriental Hotels Limited is 44.77 times less risky than CEAT. It trades about 0.07 of its potential returns per unit of risk. CEAT Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  246,858  in CEAT Limited on October 7, 2024 and sell it today you would earn a total of  71,667  from holding CEAT Limited or generate 29.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.38%
Values	Daily Returns

Oriental Hotels Limited  vs.  CEAT Limited

Oriental Hotels

Risk-Adjusted Performance

4 of 100

Insignificant

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

CEAT Limited

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Oriental Hotels and CEAT

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

The idea behind Oriental Hotels Limited and CEAT Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.