Correlation Between Keells Food and HNB Finance

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

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

Diversification Opportunities for Keells Food and HNB Finance

-0.69

Correlation Coefficient

Keells Food  HNB Finance

Excellent diversification

The 3 months correlation between Keells and HNB is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Keells Food Products and HNB Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNB Finance and Keells Food 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 Keells Food Products are associated (or correlated) with HNB Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNB Finance has no effect on the direction of Keells Food i.e., Keells Food and HNB Finance go up and down completely randomly.

Pair Corralation between Keells Food and HNB Finance

Assuming the 90 days trading horizon Keells Food Products is expected to generate 0.3 times more return on investment than HNB Finance. However, Keells Food Products is 3.28 times less risky than HNB Finance. It trades about 0.06 of its potential returns per unit of risk. HNB Finance is currently generating about -0.07 per unit of risk. If you would invest  16,450  in Keells Food Products on October 13, 2024 and sell it today you would earn a total of  575.00  from holding Keells Food Products or generate 3.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	86.67%
Values	Daily Returns

Keells Food Products  vs.  HNB Finance

Keells Food Products

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Keells Food Products are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Keells Food is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Keells Food and HNB Finance

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

The idea behind Keells Food Products and HNB Finance 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..