Correlation Between Eden Hotel and Nations Trust

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

Diversification Opportunities for Eden Hotel and Nations Trust

0.9

Correlation Coefficient

Eden Hotel  Nations Trust

Almost no diversification

The 3 months correlation between Eden and Nations is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Nations Trust Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nations Trust Bank 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 Nations Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nations Trust Bank has no effect on the direction of Eden Hotel i.e., Eden Hotel and Nations Trust go up and down completely randomly.

Pair Corralation between Eden Hotel and Nations Trust

Assuming the 90 days trading horizon Eden Hotel is expected to generate 1.14 times less return on investment than Nations Trust. In addition to that, Eden Hotel is 1.53 times more volatile than Nations Trust Bank. It trades about 0.18 of its total potential returns per unit of risk. Nations Trust Bank is currently generating about 0.32 per unit of volatility. If you would invest  14,425  in Nations Trust Bank on September 14, 2024 and sell it today you would earn a total of  1,425  from holding Nations Trust Bank or generate 9.88% return on investment over 90 days.

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

Eden Hotel Lanka  vs.  Nations Trust Bank

Eden Hotel Lanka

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eden Hotel Lanka are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eden Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Nations Trust Bank

Risk-Adjusted Performance

30 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nations Trust Bank are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nations Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eden Hotel and Nations Trust

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

The idea behind Eden Hotel Lanka and Nations Trust Bank 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.