Correlation Between Tangerine Beach and SERENDIB HOTELS

Can any of the company-specific risk be diversified away by investing in both Tangerine Beach and SERENDIB HOTELS 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 Tangerine Beach and SERENDIB HOTELS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tangerine Beach Hotels and SERENDIB HOTELS PLC, you can compare the effects of market volatilities on Tangerine Beach and SERENDIB HOTELS 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 Tangerine Beach with a short position of SERENDIB HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tangerine Beach and SERENDIB HOTELS.

Diversification Opportunities for Tangerine Beach and SERENDIB HOTELS

0.9

Correlation Coefficient

Tangerine Beach  SERENDIB HOTELS

Almost no diversification

The 3 months correlation between Tangerine and SERENDIB is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tangerine Beach Hotels and SERENDIB HOTELS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SERENDIB HOTELS PLC and Tangerine Beach 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 Tangerine Beach Hotels are associated (or correlated) with SERENDIB HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SERENDIB HOTELS PLC has no effect on the direction of Tangerine Beach i.e., Tangerine Beach and SERENDIB HOTELS go up and down completely randomly.

Pair Corralation between Tangerine Beach and SERENDIB HOTELS

Assuming the 90 days trading horizon Tangerine Beach Hotels is expected to generate 1.14 times more return on investment than SERENDIB HOTELS. However, Tangerine Beach is 1.14 times more volatile than SERENDIB HOTELS PLC. It trades about 0.2 of its potential returns per unit of risk. SERENDIB HOTELS PLC is currently generating about 0.21 per unit of risk. If you would invest  6,070  in Tangerine Beach Hotels on October 9, 2024 and sell it today you would earn a total of  2,440  from holding Tangerine Beach Hotels or generate 40.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.28%
Values	Daily Returns

Tangerine Beach Hotels  vs.  SERENDIB HOTELS PLC

Tangerine Beach Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tangerine Beach Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tangerine Beach sustained solid returns over the last few months and may actually be approaching a breakup point.

SERENDIB HOTELS PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SERENDIB HOTELS PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SERENDIB HOTELS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tangerine Beach and SERENDIB HOTELS

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

The idea behind Tangerine Beach Hotels and SERENDIB HOTELS PLC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.