Correlation Between Keells Food and Tal Lanka

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

Diversification Opportunities for Keells Food and Tal Lanka

0.55

Correlation Coefficient

Keells Food  Tal Lanka

Very weak diversification

The 3 months correlation between Keells and Tal is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Keells Food Products and Tal Lanka Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tal Lanka 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 Tal Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tal Lanka Hotels has no effect on the direction of Keells Food i.e., Keells Food and Tal Lanka go up and down completely randomly.

Pair Corralation between Keells Food and Tal Lanka

Assuming the 90 days trading horizon Keells Food Products is expected to generate 0.81 times more return on investment than Tal Lanka. However, Keells Food Products is 1.23 times less risky than Tal Lanka. It trades about -0.02 of its potential returns per unit of risk. Tal Lanka Hotels is currently generating about -0.02 per unit of risk. If you would invest  17,150  in Keells Food Products on December 25, 2024 and sell it today you would lose (575.00) from holding Keells Food Products or give up 3.35% of portfolio value over 90 days.

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

Keells Food Products  vs.  Tal Lanka Hotels

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.

Tal Lanka Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tal Lanka Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tal Lanka is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Keells Food and Tal Lanka

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

The idea behind Keells Food Products and Tal Lanka 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.