Correlation Between Eden Hotel and Lanka IOC

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

Diversification Opportunities for Eden Hotel and Lanka IOC

0.09

Correlation Coefficient

Eden Hotel  Lanka IOC

Significant diversification

The 3 months correlation between Eden and Lanka is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Lanka IOC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka IOC PLC 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 Lanka IOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka IOC PLC has no effect on the direction of Eden Hotel i.e., Eden Hotel and Lanka IOC go up and down completely randomly.

Pair Corralation between Eden Hotel and Lanka IOC

Assuming the 90 days trading horizon Eden Hotel Lanka is expected to under-perform the Lanka IOC. But the stock apears to be less risky and, when comparing its historical volatility, Eden Hotel Lanka is 1.16 times less risky than Lanka IOC. The stock trades about -0.17 of its potential returns per unit of risk. The Lanka IOC PLC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12,650  in Lanka IOC PLC on December 25, 2024 and sell it today you would lose (175.00) from holding Lanka IOC PLC or give up 1.38% of portfolio value over 90 days.

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

Eden Hotel Lanka  vs.  Lanka IOC PLC

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 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.

Lanka IOC PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lanka IOC PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lanka IOC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eden Hotel and Lanka IOC

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

The idea behind Eden Hotel Lanka and Lanka IOC 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.