Correlation Between Lanka Credit and Lighthouse Hotel

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

Diversification Opportunities for Lanka Credit and Lighthouse Hotel

0.8

Correlation Coefficient

Lanka Credit  Lighthouse Hotel

Very poor diversification

The 3 months correlation between Lanka and Lighthouse is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Credit and and Lighthouse Hotel PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lighthouse Hotel 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 Lighthouse Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lighthouse Hotel PLC has no effect on the direction of Lanka Credit i.e., Lanka Credit and Lighthouse Hotel go up and down completely randomly.

Pair Corralation between Lanka Credit and Lighthouse Hotel

Assuming the 90 days trading horizon Lanka Credit and is expected to under-perform the Lighthouse Hotel. But the stock apears to be less risky and, when comparing its historical volatility, Lanka Credit and is 1.04 times less risky than Lighthouse Hotel. The stock trades about -0.15 of its potential returns per unit of risk. The Lighthouse Hotel PLC is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  6,400  in Lighthouse Hotel PLC on December 4, 2024 and sell it today you would lose (300.00) from holding Lighthouse Hotel PLC or give up 4.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.44%
Values	Daily Returns

Lanka Credit and  vs.  Lighthouse Hotel PLC

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 11 (%) 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.

Lighthouse Hotel PLC

Risk-Adjusted Performance

Weak

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

Pair Trading with Lanka Credit and Lighthouse Hotel

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

The idea behind Lanka Credit and and Lighthouse Hotel 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.