Correlation Between Ceylon Cold and E M

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

Diversification Opportunities for Ceylon Cold and E M

0.77

Correlation Coefficient

Ceylon Cold  E M

Poor diversification

The 3 months correlation between Ceylon and EMLN0000 is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Cold Stores and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L 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 E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Ceylon Cold i.e., Ceylon Cold and E M go up and down completely randomly.

Pair Corralation between Ceylon Cold and E M

Assuming the 90 days trading horizon Ceylon Cold Stores is expected to generate 0.47 times more return on investment than E M. However, Ceylon Cold Stores is 2.13 times less risky than E M. It trades about 0.34 of its potential returns per unit of risk. E M L is currently generating about 0.12 per unit of risk. If you would invest  5,800  in Ceylon Cold Stores on October 6, 2024 and sell it today you would earn a total of  2,660  from holding Ceylon Cold Stores or generate 45.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ceylon Cold Stores  vs.  E M L

Ceylon Cold Stores

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Cold Stores are ranked lower than 27 (%) 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.

E M L

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Ceylon Cold and E M

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

The idea behind Ceylon Cold Stores and E M L 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.