Correlation Between Ceylon Hospitals and Eden Hotel

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

Diversification Opportunities for Ceylon Hospitals and Eden Hotel

-0.25

Correlation Coefficient

Ceylon Hospitals  Eden Hotel

Very good diversification

The 3 months correlation between Ceylon and Eden is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Hospitals PLC and Eden Hotel Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eden Hotel Lanka 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 Eden Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eden Hotel Lanka has no effect on the direction of Ceylon Hospitals i.e., Ceylon Hospitals and Eden Hotel go up and down completely randomly.

Pair Corralation between Ceylon Hospitals and Eden Hotel

Assuming the 90 days trading horizon Ceylon Hospitals PLC is expected to generate 1.7 times more return on investment than Eden Hotel. However, Ceylon Hospitals is 1.7 times more volatile than Eden Hotel Lanka. It trades about -0.01 of its potential returns per unit of risk. Eden Hotel Lanka is currently generating about -0.44 per unit of risk. If you would invest  12,575  in Ceylon Hospitals PLC on December 5, 2024 and sell it today you would lose (175.00) from holding Ceylon Hospitals PLC or give up 1.39% of portfolio value over 90 days.

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

Ceylon Hospitals PLC  vs.  Eden Hotel Lanka

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.

Eden Hotel Lanka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eden Hotel Lanka has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ceylon Hospitals and Eden Hotel

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

The idea behind Ceylon Hospitals PLC and Eden Hotel Lanka 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.