Correlation Between Royal Orchid and Infosys

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

Diversification Opportunities for Royal Orchid and Infosys

0.55

Correlation Coefficient

Royal Orchid  Infosys

Very weak diversification

The 3 months correlation between Royal and Infosys is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Infosys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Limited has no effect on the direction of Royal Orchid i.e., Royal Orchid and Infosys go up and down completely randomly.

Pair Corralation between Royal Orchid and Infosys

Assuming the 90 days trading horizon Royal Orchid is expected to generate 1.49 times less return on investment than Infosys. In addition to that, Royal Orchid is 1.76 times more volatile than Infosys Limited. It trades about 0.03 of its total potential returns per unit of risk. Infosys Limited is currently generating about 0.08 per unit of volatility. If you would invest  137,178  in Infosys Limited on September 26, 2024 and sell it today you would earn a total of  53,727  from holding Infosys Limited or generate 39.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.67%
Values	Daily Returns

Royal Orchid Hotels  vs.  Infosys Limited

Royal Orchid Hotels

Risk-Adjusted Performance

0 of 100

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Infosys Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Infosys is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Royal Orchid and Infosys

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

The idea behind Royal Orchid Hotels and Infosys 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.