Correlation Between Eden Hotel and Seylan Bank

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

Diversification Opportunities for Eden Hotel and Seylan Bank

0.86

Correlation Coefficient

Eden Hotel  Seylan Bank

Very poor diversification

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

Pair Corralation between Eden Hotel and Seylan Bank

Assuming the 90 days trading horizon Eden Hotel is expected to generate 1.41 times less return on investment than Seylan Bank. In addition to that, Eden Hotel is 1.11 times more volatile than Seylan Bank PLC. It trades about 0.15 of its total potential returns per unit of risk. Seylan Bank PLC is currently generating about 0.24 per unit of volatility. If you would invest  4,540  in Seylan Bank PLC on September 28, 2024 and sell it today you would earn a total of  2,590  from holding Seylan Bank PLC or generate 57.05% 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.  Seylan Bank PLC

Eden Hotel Lanka

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eden Hotel Lanka are ranked lower than 10 (%) 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.

Seylan Bank PLC

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Seylan Bank PLC are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Seylan Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eden Hotel and Seylan Bank

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

The idea behind Eden Hotel Lanka and Seylan Bank 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.