Correlation Between E M and Lanka Ceramic

Can any of the company-specific risk be diversified away by investing in both E M and Lanka Ceramic 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 E M and Lanka Ceramic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E M L and Lanka Ceramic PLC, you can compare the effects of market volatilities on E M and Lanka Ceramic 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 E M with a short position of Lanka Ceramic. Check out your portfolio center. Please also check ongoing floating volatility patterns of E M and Lanka Ceramic.

Diversification Opportunities for E M and Lanka Ceramic

0.0

Correlation Coefficient

E M  Lanka Ceramic

Pay attention - limited upside

The 3 months correlation between EMLN0000 and Lanka is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding E M L and Lanka Ceramic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Ceramic PLC and E M 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 E M L are associated (or correlated) with Lanka Ceramic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Ceramic PLC has no effect on the direction of E M i.e., E M and Lanka Ceramic go up and down completely randomly.

Pair Corralation between E M and Lanka Ceramic

If you would invest  360.00  in E M L on October 10, 2024 and sell it today you would earn a total of  30.00  from holding E M L or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

E M L  vs.  Lanka Ceramic PLC

E M L

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.

Lanka Ceramic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with E M and Lanka Ceramic

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

The idea behind E M L and Lanka Ceramic 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.