Correlation Between Ceylon Tobacco and Union Bank

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

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

Diversification Opportunities for Ceylon Tobacco and Union Bank

0.6

Correlation Coefficient

Ceylon Tobacco  Union Bank

Poor diversification

The 3 months correlation between Ceylon and Union is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Tobacco and Union Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Bank 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 Union Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Bank has no effect on the direction of Ceylon Tobacco i.e., Ceylon Tobacco and Union Bank go up and down completely randomly.

Pair Corralation between Ceylon Tobacco and Union Bank

Assuming the 90 days trading horizon Ceylon Tobacco is expected to generate 0.62 times more return on investment than Union Bank. However, Ceylon Tobacco is 1.62 times less risky than Union Bank. It trades about 0.03 of its potential returns per unit of risk. Union Bank is currently generating about -0.06 per unit of risk. If you would invest  132,475  in Ceylon Tobacco on December 26, 2024 and sell it today you would earn a total of  3,075  from holding Ceylon Tobacco or generate 2.32% return on investment over 90 days.

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

Ceylon Tobacco  vs.  Union Bank

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.

Union Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Union Bank 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 Ceylon Tobacco and Union Bank

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

The idea behind Ceylon Tobacco and Union 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.