Correlation Between S Hotels and Central Plaza

Can any of the company-specific risk be diversified away by investing in both S Hotels and Central Plaza 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 S Hotels and Central Plaza into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between S Hotels and and Central Plaza Hotel, you can compare the effects of market volatilities on S Hotels and Central Plaza 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 S Hotels with a short position of Central Plaza. Check out your portfolio center. Please also check ongoing floating volatility patterns of S Hotels and Central Plaza.

Diversification Opportunities for S Hotels and Central Plaza

0.63

Correlation Coefficient

S Hotels  Central Plaza

Poor diversification

The 3 months correlation between SHR and Central is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding S Hotels and and Central Plaza Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Plaza Hotel and S Hotels 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 S Hotels and are associated (or correlated) with Central Plaza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Plaza Hotel has no effect on the direction of S Hotels i.e., S Hotels and Central Plaza go up and down completely randomly.

Pair Corralation between S Hotels and Central Plaza

Assuming the 90 days trading horizon S Hotels and is expected to generate 1.18 times more return on investment than Central Plaza. However, S Hotels is 1.18 times more volatile than Central Plaza Hotel. It trades about 0.08 of its potential returns per unit of risk. Central Plaza Hotel is currently generating about 0.0 per unit of risk. If you would invest  214.00  in S Hotels and on September 13, 2024 and sell it today you would earn a total of  22.00  from holding S Hotels and or generate 10.28% return on investment over 90 days.

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

S Hotels and  vs.  Central Plaza Hotel

S Hotels

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in S Hotels and are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, S Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Central Plaza Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Plaza Hotel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Plaza is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with S Hotels and Central Plaza

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

The idea behind S Hotels and and Central Plaza Hotel 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.