Correlation Between Ceylon Cold and Mahaweli Reach

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

Diversification Opportunities for Ceylon Cold and Mahaweli Reach

0.42

Correlation Coefficient

Ceylon Cold  Mahaweli Reach

Very weak diversification

The 3 months correlation between Ceylon and Mahaweli is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Cold Stores and Mahaweli Reach Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mahaweli Reach Hotel 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 Mahaweli Reach. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mahaweli Reach Hotel has no effect on the direction of Ceylon Cold i.e., Ceylon Cold and Mahaweli Reach go up and down completely randomly.

Pair Corralation between Ceylon Cold and Mahaweli Reach

Assuming the 90 days trading horizon Ceylon Cold Stores is expected to generate 0.56 times more return on investment than Mahaweli Reach. However, Ceylon Cold Stores is 1.77 times less risky than Mahaweli Reach. It trades about -0.02 of its potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about -0.08 per unit of risk. If you would invest  8,140  in Ceylon Cold Stores on December 26, 2024 and sell it today you would lose (210.00) from holding Ceylon Cold Stores or give up 2.58% of portfolio value over 90 days.

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

Ceylon Cold Stores  vs.  Mahaweli Reach Hotel

Ceylon Cold Stores

Risk-Adjusted Performance

Very Weak

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

Mahaweli Reach Hotel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mahaweli Reach Hotel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ceylon Cold and Mahaweli Reach

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

The idea behind Ceylon Cold Stores and Mahaweli Reach Hotel 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.