Correlation Between Ceylon Hotels and E M

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

By analyzing existing cross correlation between Ceylon Hotels and E M L, you can compare the effects of market volatilities on Ceylon Hotels and E M 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 Hotels with a short position of E M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ceylon Hotels and E M.

Diversification Opportunities for Ceylon Hotels and E M

0.61

Correlation Coefficient

Ceylon Hotels  E M

Poor diversification

The 3 months correlation between Ceylon and EMLN0000 is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Hotels and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L and Ceylon Hotels 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 Hotels are associated (or correlated) with E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Ceylon Hotels i.e., Ceylon Hotels and E M go up and down completely randomly.

Pair Corralation between Ceylon Hotels and E M

Assuming the 90 days trading horizon Ceylon Hotels is expected to generate 0.76 times more return on investment than E M. However, Ceylon Hotels is 1.32 times less risky than E M. It trades about 0.04 of its potential returns per unit of risk. E M L is currently generating about 0.01 per unit of risk. If you would invest  1,700  in Ceylon Hotels on September 20, 2024 and sell it today you would earn a total of  580.00  from holding Ceylon Hotels or generate 34.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.16%
Values	Daily Returns

Ceylon Hotels  vs.  E M L

Ceylon Hotels

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hotels are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

E M L

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ceylon Hotels and E M

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

The idea behind Ceylon Hotels and E M L 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.