Correlation Between Galadari Hotels and Eden Hotel

Can any of the company-specific risk be diversified away by investing in both Galadari Hotels and Eden Hotel 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 Galadari Hotels and Eden Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Galadari Hotels Lanka and Eden Hotel Lanka, you can compare the effects of market volatilities on Galadari Hotels and Eden Hotel 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 Galadari Hotels with a short position of Eden Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Galadari Hotels and Eden Hotel.

Diversification Opportunities for Galadari Hotels and Eden Hotel

0.49

Correlation Coefficient

Galadari Hotels  Eden Hotel

Very weak diversification

The 3 months correlation between Galadari and Eden is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Galadari Hotels Lanka and Eden Hotel Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eden Hotel Lanka and Galadari Hotels 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 Galadari Hotels Lanka are associated (or correlated) with Eden Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eden Hotel Lanka has no effect on the direction of Galadari Hotels i.e., Galadari Hotels and Eden Hotel go up and down completely randomly.

Pair Corralation between Galadari Hotels and Eden Hotel

Assuming the 90 days trading horizon Galadari Hotels Lanka is expected to generate 1.59 times more return on investment than Eden Hotel. However, Galadari Hotels is 1.59 times more volatile than Eden Hotel Lanka. It trades about -0.09 of its potential returns per unit of risk. Eden Hotel Lanka is currently generating about -0.36 per unit of risk. If you would invest  1,880  in Galadari Hotels Lanka on December 4, 2024 and sell it today you would lose (80.00) from holding Galadari Hotels Lanka or give up 4.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Galadari Hotels Lanka  vs.  Eden Hotel Lanka

Galadari Hotels Lanka

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Galadari Hotels Lanka are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Galadari Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Galadari Hotels and Eden Hotel

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

The idea behind Galadari Hotels Lanka and Eden Hotel Lanka 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.