Correlation Between Royal Orchid and Kamat Hotels

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

Diversification Opportunities for Royal Orchid and Kamat Hotels

0.79

Correlation Coefficient

Royal Orchid  Kamat Hotels

Poor diversification

The 3 months correlation between Royal and Kamat is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Kamat Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kamat Hotels 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 Kamat Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kamat Hotels Limited has no effect on the direction of Royal Orchid i.e., Royal Orchid and Kamat Hotels go up and down completely randomly.

Pair Corralation between Royal Orchid and Kamat Hotels

Assuming the 90 days trading horizon Royal Orchid is expected to generate 2.77 times less return on investment than Kamat Hotels. But when comparing it to its historical volatility, Royal Orchid Hotels is 1.59 times less risky than Kamat Hotels. It trades about 0.06 of its potential returns per unit of risk. Kamat Hotels Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  23,507  in Kamat Hotels Limited on December 27, 2024 and sell it today you would earn a total of  6,958  from holding Kamat Hotels Limited or generate 29.6% return on investment over 90 days.

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

Royal Orchid Hotels  vs.  Kamat Hotels Limited

Royal Orchid Hotels

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Royal Orchid may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Kamat Hotels Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kamat Hotels Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Kamat Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Orchid and Kamat Hotels

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

The idea behind Royal Orchid Hotels and Kamat Hotels 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.