Correlation Between Eden Hotel and Peoples Insurance

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

Diversification Opportunities for Eden Hotel and Peoples Insurance

0.87

Correlation Coefficient

Eden Hotel  Peoples Insurance

Very poor diversification

The 3 months correlation between Eden and Peoples is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Peoples Insurance PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peoples Insurance 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 Peoples Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peoples Insurance PLC has no effect on the direction of Eden Hotel i.e., Eden Hotel and Peoples Insurance go up and down completely randomly.

Pair Corralation between Eden Hotel and Peoples Insurance

Assuming the 90 days trading horizon Eden Hotel is expected to generate 1.14 times less return on investment than Peoples Insurance. But when comparing it to its historical volatility, Eden Hotel Lanka is 1.16 times less risky than Peoples Insurance. It trades about 0.22 of its potential returns per unit of risk. Peoples Insurance PLC is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,100  in Peoples Insurance PLC on October 3, 2024 and sell it today you would earn a total of  1,090  from holding Peoples Insurance PLC or generate 51.9% return on investment over 90 days.

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

Eden Hotel Lanka  vs.  Peoples Insurance PLC

Eden Hotel Lanka

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eden Hotel Lanka are ranked lower than 13 (%) 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.

Peoples Insurance PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Peoples Insurance PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Peoples Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eden Hotel and Peoples Insurance

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

The idea behind Eden Hotel Lanka and Peoples Insurance 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.