Correlation Between Lanka Milk and Singhe Hospitals

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

Diversification Opportunities for Lanka Milk and Singhe Hospitals

0.55

Correlation Coefficient

Lanka Milk  Singhe Hospitals

Very weak diversification

The 3 months correlation between Lanka and Singhe is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Lanka Milk Foods and Singhe Hospitals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singhe Hospitals 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 Singhe Hospitals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singhe Hospitals has no effect on the direction of Lanka Milk i.e., Lanka Milk and Singhe Hospitals go up and down completely randomly.

Pair Corralation between Lanka Milk and Singhe Hospitals

Assuming the 90 days trading horizon Lanka Milk Foods is expected to generate 0.74 times more return on investment than Singhe Hospitals. However, Lanka Milk Foods is 1.36 times less risky than Singhe Hospitals. It trades about 0.17 of its potential returns per unit of risk. Singhe Hospitals is currently generating about 0.04 per unit of risk. If you would invest  2,100  in Lanka Milk Foods on October 9, 2024 and sell it today you would earn a total of  2,730  from holding Lanka Milk Foods or generate 130.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.29%
Values	Daily Returns

Lanka Milk Foods  vs.  Singhe Hospitals

Lanka Milk Foods

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Milk Foods are ranked lower than 23 (%) 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.

Singhe Hospitals

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Singhe Hospitals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Singhe Hospitals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lanka Milk and Singhe Hospitals

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

The idea behind Lanka Milk Foods and Singhe Hospitals 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.