Correlation Between Lighthouse Hotel and Ceylon Cold

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

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

Diversification Opportunities for Lighthouse Hotel and Ceylon Cold

0.7

Correlation Coefficient

Lighthouse Hotel  Ceylon Cold

Poor diversification

The 3 months correlation between Lighthouse and Ceylon is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Lighthouse Hotel PLC and Ceylon Cold Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Cold Stores and Lighthouse Hotel 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 Lighthouse Hotel PLC are associated (or correlated) with Ceylon Cold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Cold Stores has no effect on the direction of Lighthouse Hotel i.e., Lighthouse Hotel and Ceylon Cold go up and down completely randomly.

Pair Corralation between Lighthouse Hotel and Ceylon Cold

Assuming the 90 days trading horizon Lighthouse Hotel PLC is expected to under-perform the Ceylon Cold. In addition to that, Lighthouse Hotel is 1.57 times more volatile than Ceylon Cold Stores. It trades about -0.07 of its total potential returns per unit of risk. Ceylon Cold Stores is currently generating about 0.0 per unit of volatility. If you would invest  8,310  in Ceylon Cold Stores on December 28, 2024 and sell it today you would lose (60.00) from holding Ceylon Cold Stores or give up 0.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.49%
Values	Daily Returns

Lighthouse Hotel PLC  vs.  Ceylon Cold Stores

Lighthouse Hotel PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lighthouse Hotel PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ceylon Cold Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ceylon Cold Stores has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ceylon Cold is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lighthouse Hotel and Ceylon Cold

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

The idea behind Lighthouse Hotel PLC and Ceylon Cold Stores 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.