Correlation Between Ceylon Hospitals and Mahaweli Reach

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

Diversification Opportunities for Ceylon Hospitals and Mahaweli Reach

0.46

Correlation Coefficient

Ceylon Hospitals  Mahaweli Reach

Very weak diversification

The 3 months correlation between Ceylon and Mahaweli is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Hospitals PLC 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 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 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 Hospitals i.e., Ceylon Hospitals and Mahaweli Reach go up and down completely randomly.

Pair Corralation between Ceylon Hospitals and Mahaweli Reach

Assuming the 90 days trading horizon Ceylon Hospitals PLC is expected to generate 1.28 times more return on investment than Mahaweli Reach. However, Ceylon Hospitals is 1.28 times more volatile than Mahaweli Reach Hotel. It trades about -0.01 of its potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about -0.38 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 Together
Strength	Weak
Accuracy	89.47%
Values	Daily Returns

Ceylon Hospitals PLC  vs.  Mahaweli Reach Hotel

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.

Mahaweli Reach Hotel

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mahaweli Reach Hotel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Mahaweli Reach is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ceylon Hospitals and Mahaweli Reach

The main advantage of trading using opposite Ceylon Hospitals and Mahaweli Reach positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ceylon Hospitals 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 Hospitals PLC 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.