Correlation Between Distilleries Company and Serendib Hotels

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

Diversification Opportunities for Distilleries Company and Serendib Hotels

0.85

Correlation Coefficient

Distilleries Company  Serendib Hotels

Very poor diversification

The 3 months correlation between Distilleries and Serendib is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Distilleries Company of and Serendib Hotels PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Serendib Hotels PLC 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 Serendib Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Serendib Hotels PLC has no effect on the direction of Distilleries Company i.e., Distilleries Company and Serendib Hotels go up and down completely randomly.

Pair Corralation between Distilleries Company and Serendib Hotels

Assuming the 90 days trading horizon Distilleries Company of is expected to generate 0.52 times more return on investment than Serendib Hotels. However, Distilleries Company of is 1.91 times less risky than Serendib Hotels. It trades about -0.1 of its potential returns per unit of risk. Serendib Hotels PLC is currently generating about -0.13 per unit of risk. If you would invest  3,800  in Distilleries Company of on December 3, 2024 and sell it today you would lose (150.00) from holding Distilleries Company of or give up 3.95% of portfolio value over 90 days.

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

Distilleries Company of  vs.  Serendib Hotels PLC

Distilleries Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Distilleries Company of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Distilleries Company may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Serendib Hotels PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Serendib Hotels PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Serendib Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Distilleries Company and Serendib Hotels

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

The idea behind Distilleries Company of and Serendib Hotels PLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.