Correlation Between Royal Orchid and V2 Retail

Can any of the company-specific risk be diversified away by investing in both Royal Orchid and V2 Retail 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 V2 Retail 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 V2 Retail Limited, you can compare the effects of market volatilities on Royal Orchid and V2 Retail 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 V2 Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Orchid and V2 Retail.

Diversification Opportunities for Royal Orchid and V2 Retail

0.6

Correlation Coefficient

Royal Orchid  V2 Retail

Poor diversification

The 3 months correlation between Royal and V2RETAIL is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and V2 Retail Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on V2 Retail 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 V2 Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of V2 Retail Limited has no effect on the direction of Royal Orchid i.e., Royal Orchid and V2 Retail go up and down completely randomly.

Pair Corralation between Royal Orchid and V2 Retail

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to under-perform the V2 Retail. But the stock apears to be less risky and, when comparing its historical volatility, Royal Orchid Hotels is 1.38 times less risky than V2 Retail. The stock trades about 0.0 of its potential returns per unit of risk. The V2 Retail Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  125,970  in V2 Retail Limited on September 26, 2024 and sell it today you would earn a total of  34,370  from holding V2 Retail Limited or generate 27.28% 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.  V2 Retail 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.

V2 Retail Limited

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in V2 Retail Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, V2 Retail demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Orchid and V2 Retail

The main advantage of trading using opposite Royal Orchid and V2 Retail positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Orchid position performs unexpectedly, V2 Retail 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 V2 Retail will offset losses from the drop in V2 Retail's long position.

The idea behind Royal Orchid Hotels and V2 Retail 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.