Correlation Between John Keells and Madulsima Plantations

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

Diversification Opportunities for John Keells and Madulsima Plantations

0.72

Correlation Coefficient

John Keells  Madulsima Plantations

Poor diversification

The 3 months correlation between John and Madulsima is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding John Keells Hotels and Madulsima Plantations PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madulsima Plantations 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 Madulsima Plantations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madulsima Plantations PLC has no effect on the direction of John Keells i.e., John Keells and Madulsima Plantations go up and down completely randomly.

Pair Corralation between John Keells and Madulsima Plantations

Assuming the 90 days trading horizon John Keells Hotels is expected to generate 0.43 times more return on investment than Madulsima Plantations. However, John Keells Hotels is 2.33 times less risky than Madulsima Plantations. It trades about 0.25 of its potential returns per unit of risk. Madulsima Plantations PLC is currently generating about 0.1 per unit of risk. If you would invest  1,720  in John Keells Hotels on October 11, 2024 and sell it today you would earn a total of  330.00  from holding John Keells Hotels or generate 19.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.56%
Values	Daily Returns

John Keells Hotels  vs.  Madulsima Plantations PLC

John Keells Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in John Keells Hotels are ranked lower than 15 (%) 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.

Madulsima Plantations PLC

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with John Keells and Madulsima Plantations

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

The idea behind John Keells Hotels and Madulsima Plantations 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.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.