Correlation Between Eden Hotel and Kandy Hotels

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

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

Diversification Opportunities for Eden Hotel and Kandy Hotels

0.69

Correlation Coefficient

Eden Hotel  Kandy Hotels

Poor diversification

The 3 months correlation between Eden and Kandy is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Kandy Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kandy Hotels and Eden Hotel 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 Eden Hotel Lanka are associated (or correlated) with Kandy Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kandy Hotels has no effect on the direction of Eden Hotel i.e., Eden Hotel and Kandy Hotels go up and down completely randomly.

Pair Corralation between Eden Hotel and Kandy Hotels

Assuming the 90 days trading horizon Eden Hotel Lanka is expected to generate 0.92 times more return on investment than Kandy Hotels. However, Eden Hotel Lanka is 1.08 times less risky than Kandy Hotels. It trades about -0.07 of its potential returns per unit of risk. Kandy Hotels is currently generating about -0.14 per unit of risk. If you would invest  1,540  in Eden Hotel Lanka on December 5, 2024 and sell it today you would lose (140.00) from holding Eden Hotel Lanka or give up 9.09% of portfolio value over 90 days.

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

Eden Hotel Lanka  vs.  Kandy Hotels

Eden Hotel Lanka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eden Hotel Lanka 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.

Kandy Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kandy Hotels 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 Eden Hotel and Kandy Hotels

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

The idea behind Eden Hotel Lanka and Kandy 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.