Correlation Between Playa Hotels and JD Sports

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

Diversification Opportunities for Playa Hotels and JD Sports

-0.42

Correlation Coefficient

Playa Hotels  JD Sports

Very good diversification

The 3 months correlation between Playa and JDDSF is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Playa Hotels i.e., Playa Hotels and JD Sports go up and down completely randomly.

Pair Corralation between Playa Hotels and JD Sports

Given the investment horizon of 90 days Playa Hotels Resorts is expected to generate 1.48 times more return on investment than JD Sports. However, Playa Hotels is 1.48 times more volatile than JD Sports Fashion. It trades about 0.2 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.04 per unit of risk. If you would invest  775.00  in Playa Hotels Resorts on September 28, 2024 and sell it today you would earn a total of  450.00  from holding Playa Hotels Resorts or generate 58.06% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  JD Sports Fashion

Playa Hotels Resorts

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD Sports is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Playa Hotels and JD Sports

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

The idea behind Playa Hotels Resorts and JD Sports Fashion 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.