Correlation Between Asian Hotels and Lanka IOC

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

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

Diversification Opportunities for Asian Hotels and Lanka IOC

0.62

Correlation Coefficient

Asian Hotels  Lanka IOC

Poor diversification

The 3 months correlation between Asian and Lanka is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Asian Hotels and and Lanka IOC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka IOC PLC and Asian Hotels 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 Asian Hotels and are associated (or correlated) with Lanka IOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka IOC PLC has no effect on the direction of Asian Hotels i.e., Asian Hotels and Lanka IOC go up and down completely randomly.

Pair Corralation between Asian Hotels and Lanka IOC

Assuming the 90 days trading horizon Asian Hotels and is expected to generate 1.4 times more return on investment than Lanka IOC. However, Asian Hotels is 1.4 times more volatile than Lanka IOC PLC. It trades about 0.19 of its potential returns per unit of risk. Lanka IOC PLC is currently generating about 0.1 per unit of risk. If you would invest  5,500  in Asian Hotels and on October 26, 2024 and sell it today you would earn a total of  1,220  from holding Asian Hotels and or generate 22.18% return on investment over 90 days.

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

Asian Hotels and  vs.  Lanka IOC PLC

Asian Hotels

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels and are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Asian Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Lanka IOC PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka IOC PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka IOC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Asian Hotels and Lanka IOC

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

The idea behind Asian Hotels and and Lanka IOC PLC 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.