Correlation Between Ceylon Hotels and HATTON NATIONAL

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

By analyzing existing cross correlation between Ceylon Hotels and HATTON NATIONAL BANK, you can compare the effects of market volatilities on Ceylon Hotels and HATTON NATIONAL 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 HATTON NATIONAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ceylon Hotels and HATTON NATIONAL.

Diversification Opportunities for Ceylon Hotels and HATTON NATIONAL

0.46

Correlation Coefficient

Ceylon Hotels  HATTON NATIONAL

Very weak diversification

The 3 months correlation between Ceylon and HATTON is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Hotels and HATTON NATIONAL BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HATTON NATIONAL BANK 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 HATTON NATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HATTON NATIONAL BANK has no effect on the direction of Ceylon Hotels i.e., Ceylon Hotels and HATTON NATIONAL go up and down completely randomly.

Pair Corralation between Ceylon Hotels and HATTON NATIONAL

Assuming the 90 days trading horizon Ceylon Hotels is expected to under-perform the HATTON NATIONAL. In addition to that, Ceylon Hotels is 1.23 times more volatile than HATTON NATIONAL BANK. It trades about -0.03 of its total potential returns per unit of risk. HATTON NATIONAL BANK is currently generating about 0.13 per unit of volatility. If you would invest  23,050  in HATTON NATIONAL BANK on December 26, 2024 and sell it today you would earn a total of  4,000  from holding HATTON NATIONAL BANK or generate 17.35% return on investment over 90 days.

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

Ceylon Hotels  vs.  HATTON NATIONAL BANK

Ceylon Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ceylon Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ceylon Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HATTON NATIONAL BANK

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HATTON NATIONAL BANK are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HATTON NATIONAL sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ceylon Hotels and HATTON NATIONAL

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

The idea behind Ceylon Hotels and HATTON NATIONAL BANK 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.