Correlation Between Colombo Investment and Merchant Bank

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

Diversification Opportunities for Colombo Investment and Merchant Bank

0.66

Correlation Coefficient

Colombo Investment  Merchant Bank

Poor diversification

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

Pair Corralation between Colombo Investment and Merchant Bank

Assuming the 90 days trading horizon Colombo Investment Trust is expected to generate 1.79 times more return on investment than Merchant Bank. However, Colombo Investment is 1.79 times more volatile than Merchant Bank of. It trades about -0.13 of its potential returns per unit of risk. Merchant Bank of is currently generating about -0.23 per unit of risk. If you would invest  13,725  in Colombo Investment Trust on December 4, 2024 and sell it today you would lose (1,150) from holding Colombo Investment Trust or give up 8.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.89%
Values	Daily Returns

Colombo Investment Trust  vs.  Merchant Bank of

Colombo Investment Trust

Risk-Adjusted Performance

OK

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

Merchant Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merchant Bank of are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Merchant Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Colombo Investment and Merchant Bank

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

The idea behind Colombo Investment Trust and Merchant Bank of 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.