Correlation Between Arpico Insurance and SERENDIB HOTELS

Can any of the company-specific risk be diversified away by investing in both Arpico Insurance and SERENDIB 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 SERENDIB 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 SERENDIB HOTELS PLC, you can compare the effects of market volatilities on Arpico Insurance and SERENDIB 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 SERENDIB HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arpico Insurance and SERENDIB HOTELS.

Diversification Opportunities for Arpico Insurance and SERENDIB HOTELS

0.02

Correlation Coefficient

Arpico Insurance  SERENDIB HOTELS

Significant diversification

The 3 months correlation between Arpico and SERENDIB is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Arpico Insurance and SERENDIB HOTELS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SERENDIB HOTELS PLC 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 SERENDIB HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SERENDIB HOTELS PLC has no effect on the direction of Arpico Insurance i.e., Arpico Insurance and SERENDIB HOTELS go up and down completely randomly.

Pair Corralation between Arpico Insurance and SERENDIB HOTELS

Assuming the 90 days trading horizon Arpico Insurance is expected to generate 1.11 times more return on investment than SERENDIB HOTELS. However, Arpico Insurance is 1.11 times more volatile than SERENDIB HOTELS PLC. It trades about -0.06 of its potential returns per unit of risk. SERENDIB HOTELS PLC is currently generating about -0.11 per unit of risk. If you would invest  2,810  in Arpico Insurance on December 29, 2024 and sell it today you would lose (300.00) from holding Arpico Insurance or give up 10.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.21%
Values	Daily Returns

Arpico Insurance  vs.  SERENDIB HOTELS PLC

Arpico Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arpico Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

SERENDIB HOTELS PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days SERENDIB HOTELS PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Arpico Insurance and SERENDIB HOTELS

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

The idea behind Arpico Insurance and SERENDIB HOTELS 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.