Correlation Between Ceylon Cold and Tal Lanka

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

Diversification Opportunities for Ceylon Cold and Tal Lanka

0.8

Correlation Coefficient

Ceylon Cold  Tal Lanka

Very poor diversification

The 3 months correlation between Ceylon and Tal is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Cold Stores and Tal Lanka Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tal Lanka Hotels 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 Tal Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tal Lanka Hotels has no effect on the direction of Ceylon Cold i.e., Ceylon Cold and Tal Lanka go up and down completely randomly.

Pair Corralation between Ceylon Cold and Tal Lanka

Assuming the 90 days trading horizon Ceylon Cold Stores is expected to generate 0.6 times more return on investment than Tal Lanka. However, Ceylon Cold Stores is 1.67 times less risky than Tal Lanka. It trades about 0.1 of its potential returns per unit of risk. Tal Lanka Hotels is currently generating about 0.04 per unit of risk. If you would invest  3,600  in Ceylon Cold Stores on October 24, 2024 and sell it today you would earn a total of  5,120  from holding Ceylon Cold Stores or generate 142.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	92.81%
Values	Daily Returns

Ceylon Cold Stores  vs.  Tal Lanka Hotels

Ceylon Cold Stores

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Cold Stores are ranked lower than 23 (%) 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.

Tal Lanka Hotels

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Ceylon Cold and Tal Lanka

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

The idea behind Ceylon Cold Stores and Tal Lanka Hotels 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.