Correlation Between Keells Food and National Development

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

Diversification Opportunities for Keells Food and National Development

0.31

Correlation Coefficient

Keells Food  National Development

Weak diversification

The 3 months correlation between Keells and National is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Keells Food Products and National Development Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Development Bank 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 National Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Development Bank has no effect on the direction of Keells Food i.e., Keells Food and National Development go up and down completely randomly.

Pair Corralation between Keells Food and National Development

Assuming the 90 days trading horizon Keells Food Products is expected to under-perform the National Development. But the stock apears to be less risky and, when comparing its historical volatility, Keells Food Products is 1.3 times less risky than National Development. The stock trades about 0.0 of its potential returns per unit of risk. The National Development Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,470  in National Development Bank on December 26, 2024 and sell it today you would earn a total of  1,305  from holding National Development Bank or generate 13.78% return on investment over 90 days.

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

Keells Food Products  vs.  National Development Bank

Keells Food Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Keells Food Products has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

National Development Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Development Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Development sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Keells Food and National Development

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

The idea behind Keells Food Products and National Development Bank 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.