Correlation Between E M and Sigiriya Village

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

Diversification Opportunities for E M and Sigiriya Village

0.48

Correlation Coefficient

E M  Sigiriya Village

Very weak diversification

The 3 months correlation between EMLN0000 and Sigiriya is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding E M L 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 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 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 E M i.e., E M and Sigiriya Village go up and down completely randomly.

Pair Corralation between E M and Sigiriya Village

Assuming the 90 days trading horizon E M L is expected to under-perform the Sigiriya Village. But the stock apears to be less risky and, when comparing its historical volatility, E M L is 1.18 times less risky than Sigiriya Village. The stock trades about -0.06 of its potential returns per unit of risk. The Sigiriya Village Hotels is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,490  in Sigiriya Village Hotels on December 29, 2024 and sell it today you would earn a total of  110.00  from holding Sigiriya Village Hotels or generate 1.3% return on investment over 90 days.

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

E M L  vs.  Sigiriya Village Hotels

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.

Sigiriya Village Hotels

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sigiriya Village Hotels are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sigiriya Village 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 Sigiriya Village

The main advantage of trading using opposite E M and Sigiriya Village positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E M 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 E M L 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.