Correlation Between Anglo American and City Lodge
Can any of the company-specific risk be diversified away by investing in both Anglo American 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 Anglo American and City Lodge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Anglo American PLC and City Lodge Hotels, you can compare the effects of market volatilities on Anglo American 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 Anglo American with a short position of City Lodge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and City Lodge.
Diversification Opportunities for Anglo American and City Lodge
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Anglo and City is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American PLC 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 Anglo American 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 Anglo American PLC 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 Anglo American i.e., Anglo American and City Lodge go up and down completely randomly.
Pair Corralation between Anglo American and City Lodge
Assuming the 90 days trading horizon Anglo American is expected to generate 1.4 times less return on investment than City Lodge. In addition to that, Anglo American is 1.3 times more volatile than City Lodge Hotels. It trades about 0.01 of its total potential returns per unit of risk. City Lodge Hotels is currently generating about 0.01 per unit of volatility. If you would invest 49,373 in City Lodge Hotels on September 4, 2024 and sell it today you would earn a total of 127.00 from holding City Lodge Hotels or generate 0.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Anglo American PLC vs. City Lodge Hotels
Performance |
| Timeline |
| Anglo American PLC |
| City Lodge Hotels |
Anglo American and City Lodge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Anglo American and City Lodge
The main advantage of trading using opposite Anglo American and City Lodge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anglo American 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.| Anglo American vs. Harmony Gold Mining | Anglo American vs. African Media Entertainment | Anglo American vs. ABSA Bank Limited | Anglo American vs. HomeChoice Investments |
| City Lodge vs. HomeChoice Investments | City Lodge vs. Harmony Gold Mining | City Lodge vs. RCL Foods | City Lodge vs. AfroCentric Investment Corp |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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