Correlation Between Citrus Leisure and Central Industries

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

By analyzing existing cross correlation between Citrus Leisure PLC and Central Industries PLC, you can compare the effects of market volatilities on Citrus Leisure and Central Industries 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 Citrus Leisure with a short position of Central Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citrus Leisure and Central Industries.

Diversification Opportunities for Citrus Leisure and Central Industries

0.51

Correlation Coefficient

Citrus Leisure  Central Industries

Very weak diversification

The 3 months correlation between Citrus and Central is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Citrus Leisure PLC and Central Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Industries PLC and Citrus Leisure 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 Citrus Leisure PLC are associated (or correlated) with Central Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Industries PLC has no effect on the direction of Citrus Leisure i.e., Citrus Leisure and Central Industries go up and down completely randomly.

Pair Corralation between Citrus Leisure and Central Industries

Assuming the 90 days trading horizon Citrus Leisure PLC is expected to under-perform the Central Industries. But the stock apears to be less risky and, when comparing its historical volatility, Citrus Leisure PLC is 1.17 times less risky than Central Industries. The stock trades about -0.1 of its potential returns per unit of risk. The Central Industries PLC is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  15,100  in Central Industries PLC on December 27, 2024 and sell it today you would lose (550.00) from holding Central Industries PLC or give up 3.64% of portfolio value over 90 days.

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

Citrus Leisure PLC  vs.  Central Industries PLC

Citrus Leisure PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citrus Leisure PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Central Industries PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Industries PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citrus Leisure and Central Industries

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

The idea behind Citrus Leisure PLC and Central Industries PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.