Correlation Between Ceylon Tobacco and Galadari Hotels

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

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

Diversification Opportunities for Ceylon Tobacco and Galadari Hotels

0.82

Correlation Coefficient

Ceylon Tobacco  Galadari Hotels

Very poor diversification

The 3 months correlation between Ceylon and Galadari is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Tobacco 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 Ceylon Tobacco 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 Tobacco 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 Ceylon Tobacco i.e., Ceylon Tobacco and Galadari Hotels go up and down completely randomly.

Pair Corralation between Ceylon Tobacco and Galadari Hotels

Assuming the 90 days trading horizon Ceylon Tobacco is expected to generate 1.76 times less return on investment than Galadari Hotels. But when comparing it to its historical volatility, Ceylon Tobacco is 1.97 times less risky than Galadari Hotels. It trades about 0.23 of its potential returns per unit of risk. Galadari Hotels Lanka is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,760  in Galadari Hotels Lanka on October 1, 2024 and sell it today you would earn a total of  110.00  from holding Galadari Hotels Lanka or generate 6.25% return on investment over 90 days.

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

Ceylon Tobacco  vs.  Galadari Hotels Lanka

Ceylon Tobacco

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Tobacco are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Tobacco may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Galadari Hotels Lanka

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Ceylon Tobacco and Galadari Hotels

The main advantage of trading using opposite Ceylon Tobacco and Galadari Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ceylon Tobacco 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 Ceylon Tobacco 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.