Correlation Between Royal Orchid and Power Mech

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

Diversification Opportunities for Royal Orchid and Power Mech

-0.09

Correlation Coefficient

Royal Orchid  Power Mech

Good diversification

The 3 months correlation between Royal and Power is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Power Mech Projects in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Mech Projects 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 Power Mech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Mech Projects has no effect on the direction of Royal Orchid i.e., Royal Orchid and Power Mech go up and down completely randomly.

Pair Corralation between Royal Orchid and Power Mech

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to generate 0.82 times more return on investment than Power Mech. However, Royal Orchid Hotels is 1.22 times less risky than Power Mech. It trades about 0.09 of its potential returns per unit of risk. Power Mech Projects is currently generating about 0.02 per unit of risk. If you would invest  36,255  in Royal Orchid Hotels on December 25, 2024 and sell it today you would earn a total of  5,315  from holding Royal Orchid Hotels or generate 14.66% 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.  Power Mech Projects

Royal Orchid Hotels

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent essential indicators, Royal Orchid sustained solid returns over the last few months and may actually be approaching a breakup point.

Power Mech Projects

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Mech Projects are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Power Mech is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Royal Orchid and Power Mech

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

The idea behind Royal Orchid Hotels and Power Mech Projects 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.