Correlation Between Distilleries Company and Sri Lanka

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

Diversification Opportunities for Distilleries Company and Sri Lanka

0.86

Correlation Coefficient

Distilleries Company  Sri Lanka

Very poor diversification

The 3 months correlation between Distilleries and Sri is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Distilleries Company of and Sri Lanka Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sri Lanka Telecom 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 Sri Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sri Lanka Telecom has no effect on the direction of Distilleries Company i.e., Distilleries Company and Sri Lanka go up and down completely randomly.

Pair Corralation between Distilleries Company and Sri Lanka

Assuming the 90 days trading horizon Distilleries Company of is expected to generate 0.94 times more return on investment than Sri Lanka. However, Distilleries Company of is 1.07 times less risky than Sri Lanka. It trades about -0.09 of its potential returns per unit of risk. Sri Lanka Telecom is currently generating about -0.19 per unit of risk. If you would invest  3,870  in Distilleries Company of on December 27, 2024 and sell it today you would lose (310.00) from holding Distilleries Company of or give up 8.01% 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.  Sri Lanka Telecom

Distilleries Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Distilleries Company of 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.

Sri Lanka Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sri Lanka Telecom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Distilleries Company and Sri Lanka

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

The idea behind Distilleries Company of and Sri Lanka Telecom 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.