Correlation Between Playa Hotels and Whitehaven Coal

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

Diversification Opportunities for Playa Hotels and Whitehaven Coal

-0.79

Correlation Coefficient

Playa Hotels  Whitehaven Coal

Pay attention - limited upside

The 3 months correlation between Playa and Whitehaven is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and Whitehaven Coal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitehaven Coal 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 Whitehaven Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitehaven Coal has no effect on the direction of Playa Hotels i.e., Playa Hotels and Whitehaven Coal go up and down completely randomly.

Pair Corralation between Playa Hotels and Whitehaven Coal

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 4.25 times more return on investment than Whitehaven Coal. However, Playa Hotels is 4.25 times more volatile than Whitehaven Coal Limited. It trades about 0.24 of its potential returns per unit of risk. Whitehaven Coal Limited is currently generating about -0.12 per unit of risk. If you would invest  935.00  in Playa Hotels Resorts on October 9, 2024 and sell it today you would earn a total of  265.00  from holding Playa Hotels Resorts or generate 28.34% 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.  Whitehaven Coal Limited

Playa Hotels Resorts

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Playa Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Whitehaven Coal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Whitehaven Coal 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 Whitehaven Coal

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

The idea behind Playa Hotels Resorts and Whitehaven Coal 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.