Correlation Between First Hotel and Information Technology

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

By analyzing existing cross correlation between First Hotel Co and Information Technology Total, you can compare the effects of market volatilities on First Hotel and Information Technology 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 First Hotel with a short position of Information Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Hotel and Information Technology.

Diversification Opportunities for First Hotel and Information Technology

-0.3

Correlation Coefficient

First Hotel  Information Technology

Very good diversification

The 3 months correlation between First and Information is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding First Hotel Co and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology and First Hotel 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 First Hotel Co are associated (or correlated) with Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of First Hotel i.e., First Hotel and Information Technology go up and down completely randomly.

Pair Corralation between First Hotel and Information Technology

Assuming the 90 days trading horizon First Hotel is expected to generate 3.14 times less return on investment than Information Technology. But when comparing it to its historical volatility, First Hotel Co is 2.11 times less risky than Information Technology. It trades about 0.03 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,218  in Information Technology Total on April 2, 2024 and sell it today you would earn a total of  1,567  from holding Information Technology Total or generate 48.69% return on investment over 90 days.

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

First Hotel Co  vs.  Information Technology Total

First Hotel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Hotel Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Hotel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Information Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Information Technology Total has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with First Hotel and Information Technology

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

The idea behind First Hotel Co and Information Technology Total 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.