Correlation Between Ceylon Guardian and Madulsima Plantations

Can any of the company-specific risk be diversified away by investing in both Ceylon Guardian and Madulsima Plantations 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 Ceylon Guardian and Madulsima Plantations into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ceylon Guardian Investment and Madulsima Plantations PLC, you can compare the effects of market volatilities on Ceylon Guardian and Madulsima Plantations 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 Ceylon Guardian with a short position of Madulsima Plantations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ceylon Guardian and Madulsima Plantations.

Diversification Opportunities for Ceylon Guardian and Madulsima Plantations

0.64

Correlation Coefficient

Ceylon Guardian  Madulsima Plantations

Poor diversification

The 3 months correlation between Ceylon and Madulsima is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Guardian Investment and Madulsima Plantations PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madulsima Plantations PLC and Ceylon Guardian 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 Ceylon Guardian Investment are associated (or correlated) with Madulsima Plantations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madulsima Plantations PLC has no effect on the direction of Ceylon Guardian i.e., Ceylon Guardian and Madulsima Plantations go up and down completely randomly.

Pair Corralation between Ceylon Guardian and Madulsima Plantations

Assuming the 90 days trading horizon Ceylon Guardian Investment is expected to generate 1.01 times more return on investment than Madulsima Plantations. However, Ceylon Guardian is 1.01 times more volatile than Madulsima Plantations PLC. It trades about 0.08 of its potential returns per unit of risk. Madulsima Plantations PLC is currently generating about 0.03 per unit of risk. If you would invest  6,630  in Ceylon Guardian Investment on October 11, 2024 and sell it today you would earn a total of  8,520  from holding Ceylon Guardian Investment or generate 128.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.98%
Values	Daily Returns

Ceylon Guardian Investment  vs.  Madulsima Plantations PLC

Ceylon Guardian Inve

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Guardian Investment are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Guardian sustained solid returns over the last few months and may actually be approaching a breakup point.

Madulsima Plantations PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madulsima Plantations PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Madulsima Plantations sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ceylon Guardian and Madulsima Plantations

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

The idea behind Ceylon Guardian Investment and Madulsima Plantations 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.