Correlation Between Lion Brewery and Citrus Leisure

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

Diversification Opportunities for Lion Brewery and Citrus Leisure

-0.4

Correlation Coefficient

Lion Brewery  Citrus Leisure

Very good diversification

The 3 months correlation between Lion and Citrus is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Lion Brewery Ceylon and Citrus Leisure PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citrus Leisure PLC 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 Citrus Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citrus Leisure PLC has no effect on the direction of Lion Brewery i.e., Lion Brewery and Citrus Leisure go up and down completely randomly.

Pair Corralation between Lion Brewery and Citrus Leisure

Assuming the 90 days trading horizon Lion Brewery Ceylon is expected to generate 0.81 times more return on investment than Citrus Leisure. However, Lion Brewery Ceylon is 1.23 times less risky than Citrus Leisure. It trades about 0.14 of its potential returns per unit of risk. Citrus Leisure PLC is currently generating about 0.01 per unit of risk. If you would invest  100,050  in Lion Brewery Ceylon on September 14, 2024 and sell it today you would earn a total of  19,600  from holding Lion Brewery Ceylon or generate 19.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Lion Brewery Ceylon  vs.  Citrus Leisure PLC

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.

Citrus Leisure PLC

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Lion Brewery and Citrus Leisure

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

The idea behind Lion Brewery Ceylon and Citrus Leisure 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.