Correlation Between Aitken Spence and Lanka IOC

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

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

Diversification Opportunities for Aitken Spence and Lanka IOC

0.75

Correlation Coefficient

Aitken Spence  Lanka IOC

Poor diversification

The 3 months correlation between Aitken and Lanka is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Aitken Spence Hotel 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 Aitken Spence 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 Aitken Spence Hotel 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 Aitken Spence i.e., Aitken Spence and Lanka IOC go up and down completely randomly.

Pair Corralation between Aitken Spence and Lanka IOC

Assuming the 90 days trading horizon Aitken Spence is expected to generate 1.32 times less return on investment than Lanka IOC. In addition to that, Aitken Spence is 1.23 times more volatile than Lanka IOC PLC. It trades about 0.21 of its total potential returns per unit of risk. Lanka IOC PLC is currently generating about 0.34 per unit of volatility. If you would invest  11,625  in Lanka IOC PLC on October 11, 2024 and sell it today you would earn a total of  1,275  from holding Lanka IOC PLC or generate 10.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Aitken Spence Hotel  vs.  Lanka IOC PLC

Aitken Spence Hotel

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aitken Spence Hotel are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aitken Spence sustained solid returns over the last few months and may actually be approaching a breakup point.

Lanka IOC PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka IOC PLC are ranked lower than 9 (%) 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 Aitken Spence and Lanka IOC

The main advantage of trading using opposite Aitken Spence and Lanka IOC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aitken Spence 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 Aitken Spence Hotel 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.