Correlation Between Keells Food and John Keells

Can any of the company-specific risk be diversified away by investing in both Keells Food and John Keells 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 John Keells 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 John Keells Hotels, you can compare the effects of market volatilities on Keells Food and John Keells 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 John Keells. Check out your portfolio center. Please also check ongoing floating volatility patterns of Keells Food and John Keells.

Diversification Opportunities for Keells Food and John Keells

0.66

Correlation Coefficient

Keells Food  John Keells

Poor diversification

The 3 months correlation between Keells and John is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Keells Food Products and John Keells Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Keells Hotels 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 John Keells. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Keells Hotels has no effect on the direction of Keells Food i.e., Keells Food and John Keells go up and down completely randomly.

Pair Corralation between Keells Food and John Keells

Assuming the 90 days trading horizon Keells Food Products is expected to generate 0.66 times more return on investment than John Keells. However, Keells Food Products is 1.52 times less risky than John Keells. It trades about 0.21 of its potential returns per unit of risk. John Keells Hotels is currently generating about 0.01 per unit of risk. If you would invest  16,900  in Keells Food Products on September 16, 2024 and sell it today you would earn a total of  625.00  from holding Keells Food Products or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.0%
Values	Daily Returns

Keells Food Products  vs.  John Keells Hotels

Keells Food Products

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Keells Food Products are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Keells Food sustained solid returns over the last few months and may actually be approaching a breakup point.

John Keells Hotels

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in John Keells Hotels are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, John Keells sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Keells Food and John Keells

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

The idea behind Keells Food Products and John Keells 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.