Correlation Between Arpico Insurance and Ceylon Hotels

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

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

Diversification Opportunities for Arpico Insurance and Ceylon Hotels

0.47

Correlation Coefficient

Arpico Insurance  Ceylon Hotels

Very weak diversification

The 3 months correlation between Arpico and Ceylon is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Arpico Insurance and Ceylon Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hotels and Arpico Insurance 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 Arpico Insurance are associated (or correlated) with Ceylon Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Hotels has no effect on the direction of Arpico Insurance i.e., Arpico Insurance and Ceylon Hotels go up and down completely randomly.

Pair Corralation between Arpico Insurance and Ceylon Hotels

Assuming the 90 days trading horizon Arpico Insurance is expected to generate 1.29 times more return on investment than Ceylon Hotels. However, Arpico Insurance is 1.29 times more volatile than Ceylon Hotels. It trades about 0.06 of its potential returns per unit of risk. Ceylon Hotels is currently generating about 0.02 per unit of risk. If you would invest  2,510  in Arpico Insurance on December 5, 2024 and sell it today you would earn a total of  200.00  from holding Arpico Insurance or generate 7.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	89.47%
Values	Daily Returns

Arpico Insurance  vs.  Ceylon Hotels

Arpico Insurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arpico Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arpico Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylon Hotels

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hotels are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ceylon Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arpico Insurance and Ceylon Hotels

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

The idea behind Arpico Insurance and Ceylon Hotels 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.