Correlation Between Thungela Resources and City Lodge

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

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

Diversification Opportunities for Thungela Resources and City Lodge

-0.31

Correlation Coefficient

Thungela Resources  City Lodge

Very good diversification

The 3 months correlation between Thungela and City is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Thungela Resources Limited 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 Thungela Resources 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 Thungela Resources Limited 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 Thungela Resources i.e., Thungela Resources and City Lodge go up and down completely randomly.

Pair Corralation between Thungela Resources and City Lodge

Assuming the 90 days trading horizon Thungela Resources Limited is expected to generate 1.51 times more return on investment than City Lodge. However, Thungela Resources is 1.51 times more volatile than City Lodge Hotels. It trades about 0.2 of its potential returns per unit of risk. City Lodge Hotels is currently generating about 0.09 per unit of risk. If you would invest  1,046,600  in Thungela Resources Limited on September 23, 2024 and sell it today you would earn a total of  287,900  from holding Thungela Resources Limited or generate 27.51% return on investment over 90 days.

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

Thungela Resources Limited  vs.  City Lodge Hotels

Thungela Resources

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thungela Resources Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Thungela Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Thungela Resources and City Lodge

The main advantage of trading using opposite Thungela Resources and City Lodge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thungela Resources 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 Thungela Resources Limited 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.