Correlation Between Ceylon Hospitals and Lanka Realty

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

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

Diversification Opportunities for Ceylon Hospitals and Lanka Realty

-0.07

Correlation Coefficient

Ceylon Hospitals  Lanka Realty

Good diversification

The 3 months correlation between Ceylon and Lanka is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Hospitals PLC and Lanka Realty Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Realty Investments and Ceylon Hospitals 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 Hospitals PLC are associated (or correlated) with Lanka Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Realty Investments has no effect on the direction of Ceylon Hospitals i.e., Ceylon Hospitals and Lanka Realty go up and down completely randomly.

Pair Corralation between Ceylon Hospitals and Lanka Realty

Assuming the 90 days trading horizon Ceylon Hospitals PLC is expected to generate 0.7 times more return on investment than Lanka Realty. However, Ceylon Hospitals PLC is 1.43 times less risky than Lanka Realty. It trades about 0.07 of its potential returns per unit of risk. Lanka Realty Investments is currently generating about -0.06 per unit of risk. If you would invest  11,625  in Ceylon Hospitals PLC on December 25, 2024 and sell it today you would earn a total of  1,025  from holding Ceylon Hospitals PLC or generate 8.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

Ceylon Hospitals PLC  vs.  Lanka Realty Investments

Ceylon Hospitals PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hospitals PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Hospitals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lanka Realty Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lanka Realty Investments 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 Hospitals and Lanka Realty

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

The idea behind Ceylon Hospitals PLC and Lanka Realty Investments 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.