Correlation Between Lanka Milk and Distilleries Company

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

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

Diversification Opportunities for Lanka Milk and Distilleries Company

0.71

Correlation Coefficient

Lanka Milk  Distilleries Company

Poor diversification

The 3 months correlation between Lanka and Distilleries is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Milk Foods and Distilleries Company of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Distilleries Company and Lanka Milk 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 Milk Foods are associated (or correlated) with Distilleries Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Distilleries Company has no effect on the direction of Lanka Milk i.e., Lanka Milk and Distilleries Company go up and down completely randomly.

Pair Corralation between Lanka Milk and Distilleries Company

Assuming the 90 days trading horizon Lanka Milk Foods is expected to under-perform the Distilleries Company. In addition to that, Lanka Milk is 1.61 times more volatile than Distilleries Company of. It trades about -0.08 of its total potential returns per unit of risk. Distilleries Company of is currently generating about -0.13 per unit of volatility. If you would invest  3,960  in Distilleries Company of on December 28, 2024 and sell it today you would lose (430.00) from holding Distilleries Company of or give up 10.86% of portfolio value over 90 days.

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

Lanka Milk Foods  vs.  Distilleries Company of

Lanka Milk Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lanka Milk Foods 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.

Distilleries Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Distilleries Company of 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.

Pair Trading with Lanka Milk and Distilleries Company

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

The idea behind Lanka Milk Foods and Distilleries Company of 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.