Correlation Between Ceylon Beverage and Renuka Agri

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

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

Diversification Opportunities for Ceylon Beverage and Renuka Agri

0.46

Correlation Coefficient

Ceylon Beverage  Renuka Agri

Very weak diversification

The 3 months correlation between Ceylon and Renuka is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Beverage Holdings and Renuka Agri Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renuka Agri Foods and Ceylon Beverage 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 Ceylon Beverage Holdings are associated (or correlated) with Renuka Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renuka Agri Foods has no effect on the direction of Ceylon Beverage i.e., Ceylon Beverage and Renuka Agri go up and down completely randomly.

Pair Corralation between Ceylon Beverage and Renuka Agri

Assuming the 90 days trading horizon Ceylon Beverage Holdings is expected to generate 1.83 times more return on investment than Renuka Agri. However, Ceylon Beverage is 1.83 times more volatile than Renuka Agri Foods. It trades about 0.26 of its potential returns per unit of risk. Renuka Agri Foods is currently generating about 0.14 per unit of risk. If you would invest  190,000  in Ceylon Beverage Holdings on September 14, 2024 and sell it today you would earn a total of  94,825  from holding Ceylon Beverage Holdings or generate 49.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	52.54%
Values	Daily Returns

Ceylon Beverage Holdings  vs.  Renuka Agri Foods

Ceylon Beverage Holdings

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Beverage Holdings are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Renuka Agri Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Renuka Agri Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Renuka Agri sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ceylon Beverage and Renuka Agri

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

The idea behind Ceylon Beverage Holdings and Renuka Agri Foods 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.