Correlation Between Browns Beach and Ceylon Hotels

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

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

Diversification Opportunities for Browns Beach and Ceylon Hotels

0.64

Correlation Coefficient

Browns Beach  Ceylon Hotels

Poor diversification

The 3 months correlation between Browns and Ceylon is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Browns Beach Hotels and Ceylon Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hotels and Browns Beach 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 Browns Beach Hotels 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 Browns Beach i.e., Browns Beach and Ceylon Hotels go up and down completely randomly.

Pair Corralation between Browns Beach and Ceylon Hotels

Assuming the 90 days trading horizon Browns Beach Hotels is expected to generate 1.38 times more return on investment than Ceylon Hotels. However, Browns Beach is 1.38 times more volatile than Ceylon Hotels. It trades about -0.1 of its potential returns per unit of risk. Ceylon Hotels is currently generating about -0.33 per unit of risk. If you would invest  2,000  in Browns Beach Hotels on December 4, 2024 and sell it today you would lose (150.00) from holding Browns Beach Hotels or give up 7.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Browns Beach Hotels  vs.  Ceylon Hotels

Browns Beach Hotels

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Browns Beach Hotels are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Browns Beach may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ceylon Hotels

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hotels are ranked lower than 2 (%) 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 Browns Beach and Ceylon Hotels

The main advantage of trading using opposite Browns Beach and Ceylon Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Browns Beach 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 Browns Beach Hotels 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.