Correlation Between InterContinental and Target
Can any of the company-specific risk be diversified away by investing in both InterContinental and Target 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 InterContinental and Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between InterContinental Hotels Group and Target, you can compare the effects of market volatilities on InterContinental and Target 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 InterContinental with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of InterContinental and Target.
Diversification Opportunities for InterContinental and Target
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between InterContinental and Target is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and InterContinental 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 InterContinental Hotels Group are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of InterContinental i.e., InterContinental and Target go up and down completely randomly.
Pair Corralation between InterContinental and Target
Considering the 90-day investment horizon InterContinental Hotels Group is expected to under-perform the Target. But the stock apears to be less risky and, when comparing its historical volatility, InterContinental Hotels Group is 1.22 times less risky than Target. The stock trades about -0.24 of its potential returns per unit of risk. The Target is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 16,821 in Target on January 19, 2024 and sell it today you would lose (108.00) from holding Target or give up 0.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
InterContinental Hotels Group vs. Target
Performance |
| Timeline |
| InterContinental Hotels |
| Target |
InterContinental and Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with InterContinental and Target
The main advantage of trading using opposite InterContinental and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.The idea behind InterContinental Hotels Group and Target 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.| Target vs. Betterware De Mexico | Target vs. Amexdrug | Target vs. Provident Bancorp | Target vs. Mersana Therapeutics |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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