Correlation Between E M and Hotel Sigiriya

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

Diversification Opportunities for E M and Hotel Sigiriya

0.5

Correlation Coefficient

E M  Hotel Sigiriya

Very weak diversification

The 3 months correlation between EMLN0000 and Hotel is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding E M L and Hotel Sigiriya PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotel Sigiriya 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 Hotel Sigiriya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotel Sigiriya PLC has no effect on the direction of E M i.e., E M and Hotel Sigiriya go up and down completely randomly.

Pair Corralation between E M and Hotel Sigiriya

Assuming the 90 days trading horizon E M L is expected to under-perform the Hotel Sigiriya. But the stock apears to be less risky and, when comparing its historical volatility, E M L is 1.04 times less risky than Hotel Sigiriya. The stock trades about -0.06 of its potential returns per unit of risk. The Hotel Sigiriya PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,830  in Hotel Sigiriya PLC on December 28, 2024 and sell it today you would lose (80.00) from holding Hotel Sigiriya PLC or give up 1.02% of portfolio value over 90 days.

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

E M L  vs.  Hotel Sigiriya PLC

E M L

Risk-Adjusted Performance

Very Weak

Over the last 90 days E M L 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.

Hotel Sigiriya PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hotel Sigiriya PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hotel Sigiriya 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 Hotel Sigiriya

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

The idea behind E M L and Hotel Sigiriya 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.