Correlation Between Hatton National and Ceylon Hotels

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

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

Diversification Opportunities for Hatton National and Ceylon Hotels

0.79

Correlation Coefficient

Hatton National  Ceylon Hotels

Poor diversification

The 3 months correlation between Hatton and Ceylon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Hatton National Bank and Ceylon Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hotels and Hatton National 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 Hatton National Bank are associated (or correlated) with Ceylon Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Hotels has no effect on the direction of Hatton National i.e., Hatton National and Ceylon Hotels go up and down completely randomly.

Pair Corralation between Hatton National and Ceylon Hotels

Assuming the 90 days trading horizon Hatton National Bank is expected to generate 0.76 times more return on investment than Ceylon Hotels. However, Hatton National Bank is 1.32 times less risky than Ceylon Hotels. It trades about 0.41 of its potential returns per unit of risk. Ceylon Hotels is currently generating about 0.22 per unit of risk. If you would invest  16,400  in Hatton National Bank on September 15, 2024 and sell it today you would earn a total of  8,500  from holding Hatton National Bank or generate 51.83% return on investment over 90 days.

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

Hatton National Bank  vs.  Ceylon Hotels

Hatton National Bank

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Hatton National Bank are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hatton National sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylon Hotels

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Hatton National and Ceylon Hotels

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

The idea behind Hatton National Bank and Ceylon 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.