Correlation Between Royal Orchid and Eastern Silk

Can any of the company-specific risk be diversified away by investing in both Royal Orchid and Eastern Silk 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 Eastern Silk 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 Eastern Silk Industries, you can compare the effects of market volatilities on Royal Orchid and Eastern Silk 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 Eastern Silk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Orchid and Eastern Silk.

Diversification Opportunities for Royal Orchid and Eastern Silk

0.0

Correlation Coefficient

Royal Orchid  Eastern Silk

Pay attention - limited upside

The 3 months correlation between Royal and Eastern is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Eastern Silk Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Silk Industries 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 Eastern Silk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Silk Industries has no effect on the direction of Royal Orchid i.e., Royal Orchid and Eastern Silk go up and down completely randomly.

Pair Corralation between Royal Orchid and Eastern Silk

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to generate 1.24 times more return on investment than Eastern Silk. However, Royal Orchid is 1.24 times more volatile than Eastern Silk Industries. It trades about 0.04 of its potential returns per unit of risk. Eastern Silk Industries is currently generating about -0.05 per unit of risk. If you would invest  24,231  in Royal Orchid Hotels on October 10, 2024 and sell it today you would earn a total of  11,684  from holding Royal Orchid Hotels or generate 48.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	85.75%
Values	Daily Returns

Royal Orchid Hotels  vs.  Eastern Silk Industries

Royal Orchid Hotels

Risk-Adjusted Performance

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Very Weak

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

Eastern Silk Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Royal Orchid and Eastern Silk

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

The idea behind Royal Orchid Hotels and Eastern Silk Industries 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 Global Correlations module to find global opportunities by holding instruments from different markets.