Correlation Between Teradyne and Playa Hotels

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

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

Diversification Opportunities for Teradyne and Playa Hotels

-0.56

Correlation Coefficient

Teradyne  Playa Hotels

Excellent diversification

The 3 months correlation between Teradyne and Playa is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Teradyne and Playa Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playa Hotels Resorts and Teradyne 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 Teradyne are associated (or correlated) with Playa Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playa Hotels Resorts has no effect on the direction of Teradyne i.e., Teradyne and Playa Hotels go up and down completely randomly.

Pair Corralation between Teradyne and Playa Hotels

Considering the 90-day investment horizon Teradyne is expected to generate 4.54 times less return on investment than Playa Hotels. In addition to that, Teradyne is 1.42 times more volatile than Playa Hotels Resorts. It trades about 0.03 of its total potential returns per unit of risk. Playa Hotels Resorts is currently generating about 0.16 per unit of volatility. If you would invest  848.00  in Playa Hotels Resorts on September 23, 2024 and sell it today you would earn a total of  113.00  from holding Playa Hotels Resorts or generate 13.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Teradyne  vs.  Playa Hotels Resorts

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Teradyne is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Playa Hotels Resorts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teradyne and Playa Hotels

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

The idea behind Teradyne and Playa Hotels Resorts 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.