Correlation Between Compania Hoteliera and Societatea

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

By analyzing existing cross correlation between Compania Hoteliera InterContinental and Societatea de Investitii, you can compare the effects of market volatilities on Compania Hoteliera and Societatea 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 Compania Hoteliera with a short position of Societatea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania Hoteliera and Societatea.

Diversification Opportunities for Compania Hoteliera and Societatea

-0.26

Correlation Coefficient

Compania Hoteliera  Societatea

Very good diversification

The 3 months correlation between Compania and Societatea is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Compania Hoteliera InterContin and Societatea de Investitii in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Societatea de Investitii and Compania Hoteliera 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 Compania Hoteliera InterContinental are associated (or correlated) with Societatea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Societatea de Investitii has no effect on the direction of Compania Hoteliera i.e., Compania Hoteliera and Societatea go up and down completely randomly.

Pair Corralation between Compania Hoteliera and Societatea

Assuming the 90 days trading horizon Compania Hoteliera InterContinental is expected to generate 4.4 times more return on investment than Societatea. However, Compania Hoteliera is 4.4 times more volatile than Societatea de Investitii. It trades about 0.01 of its potential returns per unit of risk. Societatea de Investitii is currently generating about -0.01 per unit of risk. If you would invest  25.00  in Compania Hoteliera InterContinental on September 4, 2024 and sell it today you would lose (1.00) from holding Compania Hoteliera InterContinental or give up 4.0% of portfolio value over 90 days.

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

Compania Hoteliera InterContin  vs.  Societatea de Investitii

Compania Hoteliera

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compania Hoteliera InterContinental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Compania Hoteliera is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Societatea de Investitii

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Societatea de Investitii has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Societatea is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Compania Hoteliera and Societatea

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

The idea behind Compania Hoteliera InterContinental and Societatea de Investitii 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.