Correlation Between Rex Trueform and City Lodge

Can any of the company-specific risk be diversified away by investing in both Rex Trueform and City Lodge 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 Rex Trueform and City Lodge into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rex Trueform Group and City Lodge Hotels, you can compare the effects of market volatilities on Rex Trueform and City Lodge 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 Rex Trueform with a short position of City Lodge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rex Trueform and City Lodge.

Diversification Opportunities for Rex Trueform and City Lodge

-0.24

Correlation Coefficient

Rex Trueform  City Lodge

Very good diversification

The 3 months correlation between Rex and City is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Rex Trueform Group and City Lodge Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Lodge Hotels and Rex Trueform 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 Rex Trueform Group are associated (or correlated) with City Lodge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Lodge Hotels has no effect on the direction of Rex Trueform i.e., Rex Trueform and City Lodge go up and down completely randomly.

Pair Corralation between Rex Trueform and City Lodge

Assuming the 90 days trading horizon Rex Trueform is expected to generate 2.35 times less return on investment than City Lodge. But when comparing it to its historical volatility, Rex Trueform Group is 2.23 times less risky than City Lodge. It trades about 0.07 of its potential returns per unit of risk. City Lodge Hotels is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  49,500  in City Lodge Hotels on September 23, 2024 and sell it today you would earn a total of  1,500  from holding City Lodge Hotels or generate 3.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Rex Trueform Group  vs.  City Lodge Hotels

Rex Trueform Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rex Trueform Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rex Trueform is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

City Lodge Hotels

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Lodge Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, City Lodge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rex Trueform and City Lodge

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

The idea behind Rex Trueform Group and City Lodge Hotels 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.