Correlation Between John Keells and Sampath Bank

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

Diversification Opportunities for John Keells and Sampath Bank

0.92

Correlation Coefficient

John Keells  Sampath Bank

Almost no diversification

The 3 months correlation between John and Sampath is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding John Keells Hotels and Sampath Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sampath Bank 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 Sampath Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sampath Bank PLC has no effect on the direction of John Keells i.e., John Keells and Sampath Bank go up and down completely randomly.

Pair Corralation between John Keells and Sampath Bank

Assuming the 90 days trading horizon John Keells is expected to generate 1.67 times less return on investment than Sampath Bank. In addition to that, John Keells is 1.22 times more volatile than Sampath Bank PLC. It trades about 0.23 of its total potential returns per unit of risk. Sampath Bank PLC is currently generating about 0.47 per unit of volatility. If you would invest  7,230  in Sampath Bank PLC on September 15, 2024 and sell it today you would earn a total of  3,270  from holding Sampath Bank PLC or generate 45.23% return on investment over 90 days.

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

John Keells Hotels  vs.  Sampath Bank PLC

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.

Sampath Bank PLC

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sampath Bank PLC are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sampath Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with John Keells and Sampath Bank

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

The idea behind John Keells Hotels and Sampath Bank 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.