Correlation Between Distilleries Company and Ceylon Hotels

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

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

Diversification Opportunities for Distilleries Company and Ceylon Hotels

0.75

Correlation Coefficient

Distilleries Company  Ceylon Hotels

Poor diversification

The 3 months correlation between Distilleries and Ceylon is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Distilleries Company of and Ceylon Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hotels and Distilleries Company 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 Distilleries Company of are associated (or correlated) with Ceylon Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Hotels has no effect on the direction of Distilleries Company i.e., Distilleries Company and Ceylon Hotels go up and down completely randomly.

Pair Corralation between Distilleries Company and Ceylon Hotels

Assuming the 90 days trading horizon Distilleries Company is expected to generate 1.21 times less return on investment than Ceylon Hotels. But when comparing it to its historical volatility, Distilleries Company of is 2.11 times less risky than Ceylon Hotels. It trades about 0.34 of its potential returns per unit of risk. Ceylon Hotels is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,040  in Ceylon Hotels on September 18, 2024 and sell it today you would earn a total of  270.00  from holding Ceylon Hotels or generate 13.24% return on investment over 90 days.

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

Distilleries Company of  vs.  Ceylon Hotels

Distilleries Company

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Distilleries Company of are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Distilleries Company sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylon Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hotels are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Distilleries Company and Ceylon Hotels

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

The idea behind Distilleries Company of and Ceylon Hotels 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.