Correlation Between Lanka Realty and Mahaweli Reach

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

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

Diversification Opportunities for Lanka Realty and Mahaweli Reach

0.72

Correlation Coefficient

Lanka Realty  Mahaweli Reach

Poor diversification

The 3 months correlation between Lanka and Mahaweli is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Realty Investments 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 Lanka Realty 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 Lanka Realty Investments 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 Lanka Realty i.e., Lanka Realty and Mahaweli Reach go up and down completely randomly.

Pair Corralation between Lanka Realty and Mahaweli Reach

Assuming the 90 days trading horizon Lanka Realty is expected to generate 1.83 times less return on investment than Mahaweli Reach. In addition to that, Lanka Realty is 1.03 times more volatile than Mahaweli Reach Hotel. It trades about 0.12 of its total potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about 0.22 per unit of volatility. If you would invest  1,430  in Mahaweli Reach Hotel on October 22, 2024 and sell it today you would earn a total of  770.00  from holding Mahaweli Reach Hotel or generate 53.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Lanka Realty Investments  vs.  Mahaweli Reach Hotel

Lanka Realty Investments

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Realty Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

Mahaweli Reach Hotel

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mahaweli Reach Hotel are ranked lower than 17 (%) 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 Lanka Realty and Mahaweli Reach

The main advantage of trading using opposite Lanka Realty and Mahaweli Reach positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lanka Realty 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 Lanka Realty Investments 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.