Correlation Between Lion Brewery and Ceylon Beverage

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

By analyzing existing cross correlation between Lion Brewery Ceylon and Ceylon Beverage Holdings, you can compare the effects of market volatilities on Lion Brewery and Ceylon Beverage 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 Lion Brewery with a short position of Ceylon Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lion Brewery and Ceylon Beverage.

Diversification Opportunities for Lion Brewery and Ceylon Beverage

0.65

Correlation Coefficient

Lion Brewery  Ceylon Beverage

Poor diversification

The 3 months correlation between Lion and Ceylon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Lion Brewery Ceylon and Ceylon Beverage Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Beverage Holdings and Lion Brewery 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 Lion Brewery Ceylon are associated (or correlated) with Ceylon Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Beverage Holdings has no effect on the direction of Lion Brewery i.e., Lion Brewery and Ceylon Beverage go up and down completely randomly.

Pair Corralation between Lion Brewery and Ceylon Beverage

Assuming the 90 days trading horizon Lion Brewery is expected to generate 4.29 times less return on investment than Ceylon Beverage. But when comparing it to its historical volatility, Lion Brewery Ceylon is 2.33 times less risky than Ceylon Beverage. It trades about 0.14 of its potential returns per unit of risk. Ceylon Beverage Holdings is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  190,000  in Ceylon Beverage Holdings on September 14, 2024 and sell it today you would earn a total of  94,825  from holding Ceylon Beverage Holdings or generate 49.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	53.45%
Values	Daily Returns

Lion Brewery Ceylon  vs.  Ceylon Beverage Holdings

Lion Brewery Ceylon

Risk-Adjusted Performance

11 of 100

Good

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

Ceylon Beverage Holdings

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Beverage Holdings are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lion Brewery and Ceylon Beverage

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

The idea behind Lion Brewery Ceylon and Ceylon Beverage Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.