Correlation Between Royal Orchid and Indian Metals

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

Diversification Opportunities for Royal Orchid and Indian Metals

-0.36

Correlation Coefficient

Royal Orchid  Indian Metals

Very good diversification

The 3 months correlation between Royal and Indian is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Indian Metals Ferro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Metals Ferro 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 Indian Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Metals Ferro has no effect on the direction of Royal Orchid i.e., Royal Orchid and Indian Metals go up and down completely randomly.

Pair Corralation between Royal Orchid and Indian Metals

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to generate 1.02 times more return on investment than Indian Metals. However, Royal Orchid is 1.02 times more volatile than Indian Metals Ferro. It trades about 0.11 of its potential returns per unit of risk. Indian Metals Ferro is currently generating about -0.13 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	98.39%
Values	Daily Returns

Royal Orchid Hotels  vs.  Indian Metals Ferro

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.

Indian Metals Ferro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Metals Ferro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Royal Orchid and Indian Metals

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

The idea behind Royal Orchid Hotels and Indian Metals Ferro 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.