Correlation Between Playa Hotels and Sandfire Resources

Can any of the company-specific risk be diversified away by investing in both Playa Hotels and Sandfire Resources 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 Sandfire Resources 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 Sandfire Resources Limited, you can compare the effects of market volatilities on Playa Hotels and Sandfire Resources 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 Sandfire Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Playa Hotels and Sandfire Resources.

Diversification Opportunities for Playa Hotels and Sandfire Resources

-0.68

Correlation Coefficient

Playa Hotels  Sandfire Resources

Excellent diversification

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

Pair Corralation between Playa Hotels and Sandfire Resources

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 1.06 times more return on investment than Sandfire Resources. However, Playa Hotels is 1.06 times more volatile than Sandfire Resources Limited. It trades about 0.08 of its potential returns per unit of risk. Sandfire Resources Limited is currently generating about 0.07 per unit of risk. If you would invest  730.00  in Playa Hotels Resorts on October 5, 2024 and sell it today you would earn a total of  430.00  from holding Playa Hotels Resorts or generate 58.9% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  Sandfire Resources Limited

Playa Hotels Resorts

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Playa Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Playa Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Sandfire Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandfire Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Playa Hotels and Sandfire Resources

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

The idea behind Playa Hotels Resorts and Sandfire Resources 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.