Correlation Between Royal Orchid and CSB Bank

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

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

Diversification Opportunities for Royal Orchid and CSB Bank

-0.29

Correlation Coefficient

Royal Orchid  CSB Bank

Very good diversification

The 3 months correlation between Royal and CSB is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and CSB Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSB Bank Limited and Royal Orchid 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 Royal Orchid Hotels are associated (or correlated) with CSB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSB Bank Limited has no effect on the direction of Royal Orchid i.e., Royal Orchid and CSB Bank go up and down completely randomly.

Pair Corralation between Royal Orchid and CSB Bank

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to generate 1.53 times more return on investment than CSB Bank. However, Royal Orchid is 1.53 times more volatile than CSB Bank Limited. It trades about 0.11 of its potential returns per unit of risk. CSB Bank Limited is currently generating about -0.05 per unit of risk. If you would invest  35,370  in Royal Orchid Hotels on December 24, 2024 and sell it today you would earn a total of  6,640  from holding Royal Orchid Hotels or generate 18.77% return on investment over 90 days.

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

Royal Orchid Hotels  vs.  CSB Bank Limited

Royal Orchid Hotels

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, Royal Orchid sustained solid returns over the last few months and may actually be approaching a breakup point.

CSB Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSB Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, CSB Bank is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Royal Orchid and CSB Bank

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

The idea behind Royal Orchid Hotels and CSB Bank Limited 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.