Correlation Between Arpico Insurance and Mahaweli Reach

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

By analyzing existing cross correlation between Arpico Insurance and Mahaweli Reach Hotel, you can compare the effects of market volatilities on Arpico Insurance and Mahaweli Reach 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 Mahaweli Reach. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arpico Insurance and Mahaweli Reach.

Diversification Opportunities for Arpico Insurance and Mahaweli Reach

0.38

Correlation Coefficient

Arpico Insurance  Mahaweli Reach

Weak diversification

The 3 months correlation between Arpico and Mahaweli is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Arpico Insurance and Mahaweli Reach Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mahaweli Reach Hotel 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 Mahaweli Reach. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mahaweli Reach Hotel has no effect on the direction of Arpico Insurance i.e., Arpico Insurance and Mahaweli Reach go up and down completely randomly.

Pair Corralation between Arpico Insurance and Mahaweli Reach

Assuming the 90 days trading horizon Arpico Insurance is expected to generate 1.29 times less return on investment than Mahaweli Reach. In addition to that, Arpico Insurance is 1.05 times more volatile than Mahaweli Reach Hotel. It trades about 0.15 of its total potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about 0.21 per unit of volatility. If you would invest  1,510  in Mahaweli Reach Hotel on October 1, 2024 and sell it today you would earn a total of  730.00  from holding Mahaweli Reach Hotel or generate 48.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.36%
Values	Daily Returns

Arpico Insurance  vs.  Mahaweli Reach Hotel

Arpico Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arpico Insurance are ranked lower than 11 (%) 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.

Mahaweli Reach Hotel

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mahaweli Reach Hotel are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mahaweli Reach sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arpico Insurance and Mahaweli Reach

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

The idea behind Arpico Insurance and Mahaweli Reach Hotel 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 Global Correlations module to find global opportunities by holding instruments from different markets.