Correlation Between Rainbow Childrens and Lemon Tree

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

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

Diversification Opportunities for Rainbow Childrens and Lemon Tree

0.35

Correlation Coefficient

Rainbow Childrens  Lemon Tree

Weak diversification

The 3 months correlation between Rainbow and Lemon is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare 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 Rainbow Childrens 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 Rainbow Childrens Medicare 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 Rainbow Childrens i.e., Rainbow Childrens and Lemon Tree go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Lemon Tree

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to under-perform the Lemon Tree. But the stock apears to be less risky and, when comparing its historical volatility, Rainbow Childrens Medicare is 1.38 times less risky than Lemon Tree. The stock trades about -0.15 of its potential returns per unit of risk. The Lemon Tree Hotels is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  14,100  in Lemon Tree Hotels on October 9, 2024 and sell it today you would earn a total of  810.00  from holding Lemon Tree Hotels or generate 5.74% return on investment over 90 days.

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

Rainbow Childrens Medicare  vs.  Lemon Tree Hotels

Rainbow Childrens

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.

Lemon Tree Hotels

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Lemon Tree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rainbow Childrens and Lemon Tree

The main advantage of trading using opposite Rainbow Childrens and Lemon Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rainbow Childrens 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 Rainbow Childrens Medicare 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.