Correlation Between Lanka IOC and Union Bank

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

Diversification Opportunities for Lanka IOC and Union Bank

0.74

Correlation Coefficient

Lanka IOC  Union Bank

Poor diversification

The 3 months correlation between Lanka and Union is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Lanka IOC PLC and Union Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Bank 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 Union Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Bank has no effect on the direction of Lanka IOC i.e., Lanka IOC and Union Bank go up and down completely randomly.

Pair Corralation between Lanka IOC and Union Bank

Assuming the 90 days trading horizon Lanka IOC is expected to generate 2.05 times less return on investment than Union Bank. But when comparing it to its historical volatility, Lanka IOC PLC is 1.61 times less risky than Union Bank. It trades about 0.14 of its potential returns per unit of risk. Union Bank is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  990.00  in Union Bank on October 9, 2024 and sell it today you would earn a total of  270.00  from holding Union Bank or generate 27.27% return on investment over 90 days.

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

Lanka IOC PLC  vs.  Union Bank

Lanka IOC PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka IOC PLC are ranked lower than 11 (%) 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.

Union Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Union Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lanka IOC and Union Bank

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

The idea behind Lanka IOC PLC and Union Bank 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.