Correlation Between Ceylon Hotels and Sanasa Development

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

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

Diversification Opportunities for Ceylon Hotels and Sanasa Development

0.66

Correlation Coefficient

Ceylon Hotels  Sanasa Development

Poor diversification

The 3 months correlation between Ceylon and Sanasa is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Hotels and Sanasa Development Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanasa Development 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 Sanasa Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanasa Development Bank has no effect on the direction of Ceylon Hotels i.e., Ceylon Hotels and Sanasa Development go up and down completely randomly.

Pair Corralation between Ceylon Hotels and Sanasa Development

Assuming the 90 days trading horizon Ceylon Hotels is expected to generate 1.63 times more return on investment than Sanasa Development. However, Ceylon Hotels is 1.63 times more volatile than Sanasa Development Bank. It trades about 0.22 of its potential returns per unit of risk. Sanasa Development Bank is currently generating about 0.12 per unit of risk. If you would invest  1,750  in Ceylon Hotels on September 15, 2024 and sell it today you would earn a total of  590.00  from holding Ceylon Hotels or generate 33.71% return on investment over 90 days.

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

Ceylon Hotels  vs.  Sanasa Development Bank

Ceylon Hotels

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hotels are ranked lower than 17 (%) 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.

Sanasa Development Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sanasa Development Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sanasa Development may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ceylon Hotels and Sanasa Development

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

The idea behind Ceylon Hotels and Sanasa Development 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.