Correlation Between HNB Finance and Lanka Milk

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

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

Diversification Opportunities for HNB Finance and Lanka Milk

-0.68

Correlation Coefficient

HNB Finance  Lanka Milk

Excellent diversification

The 3 months correlation between HNB and Lanka is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding HNB Finance and Lanka Milk Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Milk Foods and HNB Finance 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 HNB Finance are associated (or correlated) with Lanka Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Milk Foods has no effect on the direction of HNB Finance i.e., HNB Finance and Lanka Milk go up and down completely randomly.

Pair Corralation between HNB Finance and Lanka Milk

Assuming the 90 days trading horizon HNB Finance is expected to under-perform the Lanka Milk. In addition to that, HNB Finance is 1.96 times more volatile than Lanka Milk Foods. It trades about -0.1 of its total potential returns per unit of risk. Lanka Milk Foods is currently generating about 0.5 per unit of volatility. If you would invest  3,300  in Lanka Milk Foods on October 4, 2024 and sell it today you would earn a total of  1,380  from holding Lanka Milk Foods or generate 41.82% return on investment over 90 days.

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

HNB Finance  vs.  Lanka Milk Foods

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNB Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lanka Milk Foods

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Milk Foods are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka Milk sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HNB Finance and Lanka Milk

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

The idea behind HNB Finance and Lanka Milk Foods 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.