Correlation Between Playa Hotels and CHINA FOODS

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

By analyzing existing cross correlation between Playa Hotels Resorts and CHINA FOODS UNSPADR20, you can compare the effects of market volatilities on Playa Hotels and CHINA FOODS 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 Playa Hotels with a short position of CHINA FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Playa Hotels and CHINA FOODS.

Diversification Opportunities for Playa Hotels and CHINA FOODS

0.14

Correlation Coefficient

Playa Hotels  CHINA FOODS

Average diversification

The 3 months correlation between Playa and CHINA is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and CHINA FOODS UNSPADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA FOODS UNSPADR20 and Playa 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 Playa Hotels Resorts are associated (or correlated) with CHINA FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA FOODS UNSPADR20 has no effect on the direction of Playa Hotels i.e., Playa Hotels and CHINA FOODS go up and down completely randomly.

Pair Corralation between Playa Hotels and CHINA FOODS

Assuming the 90 days horizon Playa Hotels is expected to generate 3.02 times less return on investment than CHINA FOODS. But when comparing it to its historical volatility, Playa Hotels Resorts is 2.46 times less risky than CHINA FOODS. It trades about 0.07 of its potential returns per unit of risk. CHINA FOODS UNSPADR20 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  580.00  in CHINA FOODS UNSPADR20 on December 29, 2024 and sell it today you would earn a total of  85.00  from holding CHINA FOODS UNSPADR20 or generate 14.66% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  CHINA FOODS UNSPADR20

Playa Hotels Resorts

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Playa Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA FOODS UNSPADR20

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA FOODS UNSPADR20 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, CHINA FOODS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Playa Hotels and CHINA FOODS

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

The idea behind Playa Hotels Resorts and CHINA FOODS UNSPADR20 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .