Correlation Between Lanka IOC and Janashakthi Insurance

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

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

Diversification Opportunities for Lanka IOC and Janashakthi Insurance

0.41

Correlation Coefficient

Lanka IOC  Janashakthi Insurance

Very weak diversification

The 3 months correlation between Lanka and Janashakthi is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Lanka IOC PLC and Janashakthi Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Janashakthi Insurance and Lanka IOC 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 IOC PLC are associated (or correlated) with Janashakthi Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Janashakthi Insurance has no effect on the direction of Lanka IOC i.e., Lanka IOC and Janashakthi Insurance go up and down completely randomly.

Pair Corralation between Lanka IOC and Janashakthi Insurance

Assuming the 90 days trading horizon Lanka IOC is expected to generate 2.44 times less return on investment than Janashakthi Insurance. But when comparing it to its historical volatility, Lanka IOC PLC is 1.2 times less risky than Janashakthi Insurance. It trades about 0.11 of its potential returns per unit of risk. Janashakthi Insurance is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,800  in Janashakthi Insurance on September 14, 2024 and sell it today you would earn a total of  1,200  from holding Janashakthi Insurance or generate 31.58% return on investment over 90 days.

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

Lanka IOC PLC  vs.  Janashakthi Insurance

Lanka IOC PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka IOC PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka IOC sustained solid returns over the last few months and may actually be approaching a breakup point.

Janashakthi Insurance

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Janashakthi Insurance are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Janashakthi Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lanka IOC and Janashakthi Insurance

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

The idea behind Lanka IOC PLC and Janashakthi Insurance 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.