Correlation Between Eden Hotel and Sigiriya Village

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

Diversification Opportunities for Eden Hotel and Sigiriya Village

0.4

Correlation Coefficient

Eden Hotel  Sigiriya Village

Very weak diversification

The 3 months correlation between Eden and Sigiriya is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Sigiriya Village Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigiriya Village 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 Sigiriya Village. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigiriya Village Hotels has no effect on the direction of Eden Hotel i.e., Eden Hotel and Sigiriya Village go up and down completely randomly.

Pair Corralation between Eden Hotel and Sigiriya Village

Assuming the 90 days trading horizon Eden Hotel Lanka is expected to under-perform the Sigiriya Village. But the stock apears to be less risky and, when comparing its historical volatility, Eden Hotel Lanka is 2.89 times less risky than Sigiriya Village. The stock trades about -0.44 of its potential returns per unit of risk. The Sigiriya Village Hotels is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  9,430  in Sigiriya Village Hotels on December 5, 2024 and sell it today you would lose (740.00) from holding Sigiriya Village Hotels or give up 7.85% of portfolio value over 90 days.

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

Eden Hotel Lanka  vs.  Sigiriya Village 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.

Sigiriya Village Hotels

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sigiriya Village Hotels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sigiriya Village sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eden Hotel and Sigiriya Village

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

The idea behind Eden Hotel Lanka and Sigiriya Village 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.