Correlation Between Prakash Steelage and Lemon Tree

Can any of the company-specific risk be diversified away by investing in both Prakash Steelage and Lemon Tree 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 Prakash Steelage and Lemon Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prakash Steelage Limited and Lemon Tree Hotels, you can compare the effects of market volatilities on Prakash Steelage and Lemon Tree 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 Prakash Steelage with a short position of Lemon Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prakash Steelage and Lemon Tree.

Diversification Opportunities for Prakash Steelage and Lemon Tree

0.82

Correlation Coefficient

Prakash Steelage  Lemon Tree

Very poor diversification

The 3 months correlation between Prakash and Lemon is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Prakash Steelage Limited and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and Prakash Steelage 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 Prakash Steelage Limited are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of Prakash Steelage i.e., Prakash Steelage and Lemon Tree go up and down completely randomly.

Pair Corralation between Prakash Steelage and Lemon Tree

Assuming the 90 days trading horizon Prakash Steelage Limited is expected to under-perform the Lemon Tree. But the stock apears to be less risky and, when comparing its historical volatility, Prakash Steelage Limited is 1.08 times less risky than Lemon Tree. The stock trades about -0.13 of its potential returns per unit of risk. The Lemon Tree Hotels is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  14,950  in Lemon Tree Hotels on December 27, 2024 and sell it today you would lose (1,764) from holding Lemon Tree Hotels or give up 11.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Prakash Steelage Limited  vs.  Lemon Tree Hotels

Prakash Steelage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prakash Steelage Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Lemon Tree Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lemon Tree Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Prakash Steelage and Lemon Tree

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

The idea behind Prakash Steelage Limited and Lemon Tree Hotels 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.