Correlation Between John Keells and Union Chemicals

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

Diversification Opportunities for John Keells and Union Chemicals

0.67

Correlation Coefficient

John Keells  Union Chemicals

Poor diversification

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

Pair Corralation between John Keells and Union Chemicals

Assuming the 90 days trading horizon John Keells is expected to generate 1.88 times less return on investment than Union Chemicals. But when comparing it to its historical volatility, John Keells Hotels is 1.2 times less risky than Union Chemicals. It trades about 0.03 of its potential returns per unit of risk. Union Chemicals Lanka is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  58,125  in Union Chemicals Lanka on October 11, 2024 and sell it today you would earn a total of  14,850  from holding Union Chemicals Lanka or generate 25.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	66.81%
Values	Daily Returns

John Keells Hotels  vs.  Union Chemicals Lanka

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.

Union Chemicals Lanka

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with John Keells and Union Chemicals

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

The idea behind John Keells Hotels and Union Chemicals Lanka 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.