Correlation Between Ceylon Cold and Ceylon Hospitals

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

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

Diversification Opportunities for Ceylon Cold and Ceylon Hospitals

-0.08

Correlation Coefficient

Ceylon Cold  Ceylon Hospitals

Good diversification

The 3 months correlation between Ceylon and Ceylon is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Cold Stores and Ceylon Hospitals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hospitals PLC and Ceylon Cold 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 Cold Stores are associated (or correlated) with Ceylon Hospitals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Hospitals PLC has no effect on the direction of Ceylon Cold i.e., Ceylon Cold and Ceylon Hospitals go up and down completely randomly.

Pair Corralation between Ceylon Cold and Ceylon Hospitals

Assuming the 90 days trading horizon Ceylon Cold Stores is expected to generate 0.76 times more return on investment than Ceylon Hospitals. However, Ceylon Cold Stores is 1.32 times less risky than Ceylon Hospitals. It trades about 0.09 of its potential returns per unit of risk. Ceylon Hospitals PLC is currently generating about -0.01 per unit of risk. If you would invest  3,500  in Ceylon Cold Stores on September 19, 2024 and sell it today you would earn a total of  3,600  from holding Ceylon Cold Stores or generate 102.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.68%
Values	Daily Returns

Ceylon Cold Stores  vs.  Ceylon Hospitals PLC

Ceylon Cold Stores

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Cold Stores are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Cold sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylon Hospitals PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ceylon Hospitals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ceylon Hospitals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ceylon Cold and Ceylon Hospitals

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

The idea behind Ceylon Cold Stores and Ceylon Hospitals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.