Correlation Between John Keells and Lanka IOC

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

By analyzing existing cross correlation between John Keells Hotels and Lanka IOC PLC, you can compare the effects of market volatilities on John Keells and Lanka IOC 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 John Keells with a short position of Lanka IOC. Check out your portfolio center. Please also check ongoing floating volatility patterns of John Keells and Lanka IOC.

Diversification Opportunities for John Keells and Lanka IOC

0.67

Correlation Coefficient

John Keells  Lanka IOC

Poor diversification

The 3 months correlation between John and Lanka is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding John Keells Hotels and Lanka IOC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka IOC PLC and John Keells 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 John Keells Hotels are associated (or correlated) with Lanka IOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka IOC PLC has no effect on the direction of John Keells i.e., John Keells and Lanka IOC go up and down completely randomly.

Pair Corralation between John Keells and Lanka IOC

Assuming the 90 days trading horizon John Keells is expected to generate 2.0 times less return on investment than Lanka IOC. But when comparing it to its historical volatility, John Keells Hotels is 1.02 times less risky than Lanka IOC. It trades about 0.0 of its potential returns per unit of risk. Lanka IOC PLC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12,650  in Lanka IOC PLC on December 25, 2024 and sell it today you would lose (175.00) from holding Lanka IOC PLC or give up 1.38% of portfolio value over 90 days.

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

John Keells Hotels  vs.  Lanka IOC PLC

John Keells Hotels

Risk-Adjusted Performance

Very Weak

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

Lanka IOC PLC

Risk-Adjusted Performance

Very Weak

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

Pair Trading with John Keells and Lanka IOC

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

The idea behind John Keells Hotels and Lanka IOC PLC 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.