Correlation Between Hotel Sigiriya and Mahaweli Reach

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

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

Diversification Opportunities for Hotel Sigiriya and Mahaweli Reach

0.95

Correlation Coefficient

Hotel Sigiriya  Mahaweli Reach

Almost no diversification

The 3 months correlation between Hotel and Mahaweli is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Hotel Sigiriya PLC and Mahaweli Reach Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mahaweli Reach Hotel and Hotel Sigiriya 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 Hotel Sigiriya PLC are associated (or correlated) with Mahaweli Reach. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mahaweli Reach Hotel has no effect on the direction of Hotel Sigiriya i.e., Hotel Sigiriya and Mahaweli Reach go up and down completely randomly.

Pair Corralation between Hotel Sigiriya and Mahaweli Reach

Assuming the 90 days trading horizon Hotel Sigiriya PLC is expected to generate 0.85 times more return on investment than Mahaweli Reach. However, Hotel Sigiriya PLC is 1.17 times less risky than Mahaweli Reach. It trades about 0.27 of its potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about 0.21 per unit of risk. If you would invest  4,850  in Hotel Sigiriya PLC on October 1, 2024 and sell it today you would earn a total of  2,850  from holding Hotel Sigiriya PLC or generate 58.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

Hotel Sigiriya PLC  vs.  Mahaweli Reach Hotel

Hotel Sigiriya PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hotel Sigiriya PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hotel Sigiriya sustained solid returns over the last few months and may actually be approaching a breakup point.

Mahaweli Reach Hotel

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mahaweli Reach Hotel are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mahaweli Reach sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hotel Sigiriya and Mahaweli Reach

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

The idea behind Hotel Sigiriya PLC and Mahaweli Reach Hotel 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.