Correlation Between Lanka Milk and Keells Food

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

Diversification Opportunities for Lanka Milk and Keells Food

0.49

Correlation Coefficient

Lanka Milk  Keells Food

Very weak diversification

The 3 months correlation between Lanka and Keells is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Milk Foods and Keells Food Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keells Food Products 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 Keells Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keells Food Products has no effect on the direction of Lanka Milk i.e., Lanka Milk and Keells Food go up and down completely randomly.

Pair Corralation between Lanka Milk and Keells Food

Assuming the 90 days trading horizon Lanka Milk Foods is expected to under-perform the Keells Food. But the stock apears to be less risky and, when comparing its historical volatility, Lanka Milk Foods is 1.1 times less risky than Keells Food. The stock trades about -0.11 of its potential returns per unit of risk. The Keells Food Products is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16,925  in Keells Food Products on December 5, 2024 and sell it today you would earn a total of  625.00  from holding Keells Food Products or generate 3.69% return on investment over 90 days.

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

Lanka Milk Foods  vs.  Keells Food Products

Lanka Milk Foods

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Milk Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka Milk sustained solid returns over the last few months and may actually be approaching a breakup point.

Keells Food Products

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Keells Food Products are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Keells Food is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lanka Milk and Keells Food

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

The idea behind Lanka Milk Foods and Keells Food Products 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.