Correlation Between Royal Orchid and Vedanta

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

Diversification Opportunities for Royal Orchid and Vedanta

0.74

Correlation Coefficient

Royal Orchid  Vedanta

Poor diversification

The 3 months correlation between Royal and Vedanta is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Vedanta Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vedanta 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 Vedanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vedanta Limited has no effect on the direction of Royal Orchid i.e., Royal Orchid and Vedanta go up and down completely randomly.

Pair Corralation between Royal Orchid and Vedanta

Assuming the 90 days trading horizon Royal Orchid is expected to generate 1.67 times less return on investment than Vedanta. But when comparing it to its historical volatility, Royal Orchid Hotels is 1.03 times less risky than Vedanta. It trades about 0.04 of its potential returns per unit of risk. Vedanta Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  23,145  in Vedanta Limited on October 5, 2024 and sell it today you would earn a total of  21,830  from holding Vedanta Limited or generate 94.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Royal Orchid Hotels  vs.  Vedanta Limited

Royal Orchid Hotels

Risk-Adjusted Performance

6 of 100

Insignificant

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 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vedanta Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vedanta Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Royal Orchid and Vedanta

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

The idea behind Royal Orchid Hotels and Vedanta 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.