Correlation Between Colombo Investment and Galadari Hotels

Can any of the company-specific risk be diversified away by investing in both Colombo Investment and Galadari Hotels 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 Galadari Hotels 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 Galadari Hotels Lanka, you can compare the effects of market volatilities on Colombo Investment and Galadari Hotels 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 Galadari Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colombo Investment and Galadari Hotels.

Diversification Opportunities for Colombo Investment and Galadari Hotels

0.03

Correlation Coefficient

Colombo Investment  Galadari Hotels

Significant diversification

The 3 months correlation between Colombo and Galadari is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Colombo Investment Trust and Galadari Hotels Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galadari Hotels Lanka 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 Galadari Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galadari Hotels Lanka has no effect on the direction of Colombo Investment i.e., Colombo Investment and Galadari Hotels go up and down completely randomly.

Pair Corralation between Colombo Investment and Galadari Hotels

Assuming the 90 days trading horizon Colombo Investment Trust is expected to generate 1.26 times more return on investment than Galadari Hotels. However, Colombo Investment is 1.26 times more volatile than Galadari Hotels Lanka. It trades about 0.02 of its potential returns per unit of risk. Galadari Hotels Lanka is currently generating about -0.04 per unit of risk. If you would invest  11,900  in Colombo Investment Trust on December 28, 2024 and sell it today you would earn a total of  50.00  from holding Colombo Investment Trust or generate 0.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	89.47%
Values	Daily Returns

Colombo Investment Trust  vs.  Galadari Hotels Lanka

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.

Galadari Hotels Lanka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Galadari Hotels Lanka has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Colombo Investment and Galadari Hotels

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

The idea behind Colombo Investment Trust and Galadari Hotels Lanka 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.