Correlation Between Lanka Credit and Ceylon Tobacco

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

Diversification Opportunities for Lanka Credit and Ceylon Tobacco

0.91

Correlation Coefficient

Lanka Credit  Ceylon Tobacco

Almost no diversification

The 3 months correlation between Lanka and Ceylon is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Credit and and Ceylon Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Tobacco 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 Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Tobacco has no effect on the direction of Lanka Credit i.e., Lanka Credit and Ceylon Tobacco go up and down completely randomly.

Pair Corralation between Lanka Credit and Ceylon Tobacco

Assuming the 90 days trading horizon Lanka Credit and is expected to under-perform the Ceylon Tobacco. In addition to that, Lanka Credit is 1.76 times more volatile than Ceylon Tobacco. It trades about -0.22 of its total potential returns per unit of risk. Ceylon Tobacco is currently generating about -0.04 per unit of volatility. If you would invest  146,625  in Ceylon Tobacco on December 5, 2024 and sell it today you would lose (1,825) from holding Ceylon Tobacco or give up 1.24% of portfolio value over 90 days.

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

Lanka Credit and  vs.  Ceylon Tobacco

Lanka Credit

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Credit and are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka Credit sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylon Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Tobacco are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lanka Credit and Ceylon Tobacco

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

The idea behind Lanka Credit and and Ceylon Tobacco 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.