Correlation Between Palm Garden and E M

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

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

Diversification Opportunities for Palm Garden and E M

0.68

Correlation Coefficient

Palm Garden  E M

Poor diversification

The 3 months correlation between Palm and EMLN0000 is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Palm Garden Hotels and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L and Palm Garden 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 Palm Garden Hotels are associated (or correlated) with E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Palm Garden i.e., Palm Garden and E M go up and down completely randomly.

Pair Corralation between Palm Garden and E M

Assuming the 90 days trading horizon Palm Garden Hotels is expected to generate 0.81 times more return on investment than E M. However, Palm Garden Hotels is 1.23 times less risky than E M. It trades about 0.57 of its potential returns per unit of risk. E M L is currently generating about 0.16 per unit of risk. If you would invest  4,710  in Palm Garden Hotels on September 22, 2024 and sell it today you would earn a total of  2,510  from holding Palm Garden Hotels or generate 53.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Palm Garden Hotels  vs.  E M L

Palm Garden Hotels

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Palm Garden Hotels are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Palm Garden sustained solid returns over the last few months and may actually be approaching a breakup point.

E M L

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palm Garden and E M

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

The idea behind Palm Garden Hotels and E M L 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.