Correlation Between Lanka Credit and Ceylon Hospitals

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

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

Diversification Opportunities for Lanka Credit and Ceylon Hospitals

-0.01

Correlation Coefficient

Lanka Credit  Ceylon Hospitals

Good diversification

The 3 months correlation between Lanka and Ceylon is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Credit and and Ceylon Hospitals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hospitals PLC and Lanka Credit 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 Lanka Credit and are associated (or correlated) with Ceylon Hospitals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Hospitals PLC has no effect on the direction of Lanka Credit i.e., Lanka Credit and Ceylon Hospitals go up and down completely randomly.

Pair Corralation between Lanka Credit and Ceylon Hospitals

Assuming the 90 days trading horizon Lanka Credit is expected to generate 3.48 times less return on investment than Ceylon Hospitals. In addition to that, Lanka Credit is 1.41 times more volatile than Ceylon Hospitals PLC. It trades about 0.02 of its total potential returns per unit of risk. Ceylon Hospitals PLC is currently generating about 0.09 per unit of volatility. If you would invest  11,500  in Ceylon Hospitals PLC on December 31, 2024 and sell it today you would earn a total of  1,250  from holding Ceylon Hospitals PLC or generate 10.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Lanka Credit and  vs.  Ceylon Hospitals PLC

Lanka Credit

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Credit and are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lanka Credit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ceylon Hospitals PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hospitals PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Hospitals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lanka Credit and Ceylon Hospitals

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

The idea behind Lanka Credit and and Ceylon Hospitals 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.