Correlation Between Browns Beach and Lion Brewery

Can any of the company-specific risk be diversified away by investing in both Browns Beach and Lion Brewery 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 Lion Brewery 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 Lion Brewery Ceylon, you can compare the effects of market volatilities on Browns Beach and Lion Brewery 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 Lion Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Browns Beach and Lion Brewery.

Diversification Opportunities for Browns Beach and Lion Brewery

0.86

Correlation Coefficient

Browns Beach  Lion Brewery

Very poor diversification

The 3 months correlation between Browns and Lion is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Browns Beach Hotels and Lion Brewery Ceylon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Brewery Ceylon 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 Lion Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Brewery Ceylon has no effect on the direction of Browns Beach i.e., Browns Beach and Lion Brewery go up and down completely randomly.

Pair Corralation between Browns Beach and Lion Brewery

Assuming the 90 days trading horizon Browns Beach is expected to generate 1.32 times less return on investment than Lion Brewery. In addition to that, Browns Beach is 1.93 times more volatile than Lion Brewery Ceylon. It trades about 0.04 of its total potential returns per unit of risk. Lion Brewery Ceylon is currently generating about 0.11 per unit of volatility. If you would invest  55,400  in Lion Brewery Ceylon on October 4, 2024 and sell it today you would earn a total of  63,125  from holding Lion Brewery Ceylon or generate 113.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	92.39%
Values	Daily Returns

Browns Beach Hotels  vs.  Lion Brewery Ceylon

Browns Beach Hotels

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Browns Beach Hotels are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Browns Beach sustained solid returns over the last few months and may actually be approaching a breakup point.

Lion Brewery Ceylon

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Brewery Ceylon are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lion Brewery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Browns Beach and Lion Brewery

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

The idea behind Browns Beach Hotels and Lion Brewery Ceylon 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.