Correlation Between Union Chemicals and Asian Hotels

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

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

Diversification Opportunities for Union Chemicals and Asian Hotels

0.52

Correlation Coefficient

Union Chemicals  Asian Hotels

Very weak diversification

The 3 months correlation between Union and Asian is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Union Chemicals Lanka and Asian Hotels and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Hotels and Union Chemicals 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 Union Chemicals Lanka are associated (or correlated) with Asian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Hotels has no effect on the direction of Union Chemicals i.e., Union Chemicals and Asian Hotels go up and down completely randomly.

Pair Corralation between Union Chemicals and Asian Hotels

Assuming the 90 days trading horizon Union Chemicals is expected to generate 2.81 times less return on investment than Asian Hotels. But when comparing it to its historical volatility, Union Chemicals Lanka is 2.19 times less risky than Asian Hotels. It trades about 0.12 of its potential returns per unit of risk. Asian Hotels and is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,420  in Asian Hotels and on October 11, 2024 and sell it today you would earn a total of  700.00  from holding Asian Hotels and or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.12%
Values	Daily Returns

Union Chemicals Lanka  vs.  Asian Hotels and

Union Chemicals Lanka

Risk-Adjusted Performance

16 of 100

Solid

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

Asian Hotels

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels and are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Asian Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Union Chemicals and Asian Hotels

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

The idea behind Union Chemicals Lanka and Asian Hotels and 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.