Correlation Between Colombo Investment and Ceylon Tobacco

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

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

Diversification Opportunities for Colombo Investment and Ceylon Tobacco

0.52

Correlation Coefficient

Colombo Investment  Ceylon Tobacco

Very weak diversification

The 3 months correlation between Colombo and Ceylon is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Colombo Investment Trust and Ceylon Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Tobacco and Colombo Investment 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 Colombo Investment Trust are associated (or correlated) with Ceylon Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Tobacco has no effect on the direction of Colombo Investment i.e., Colombo Investment and Ceylon Tobacco go up and down completely randomly.

Pair Corralation between Colombo Investment and Ceylon Tobacco

Assuming the 90 days trading horizon Colombo Investment Trust is expected to generate 2.25 times more return on investment than Ceylon Tobacco. However, Colombo Investment is 2.25 times more volatile than Ceylon Tobacco. It trades about 0.02 of its potential returns per unit of risk. Ceylon Tobacco is currently generating about 0.03 per unit of risk. If you would invest  11,875  in Colombo Investment Trust on December 25, 2024 and sell it today you would lose (75.00) from holding Colombo Investment Trust or give up 0.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	87.5%
Values	Daily Returns

Colombo Investment Trust  vs.  Ceylon Tobacco

Colombo Investment Trust

Risk-Adjusted Performance

Weak

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

Ceylon Tobacco

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ceylon Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Colombo Investment and Ceylon Tobacco

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

The idea behind Colombo Investment Trust and Ceylon Tobacco 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.