Correlation Between Mahaweli Reach and Kandy Hotels

Can any of the company-specific risk be diversified away by investing in both Mahaweli Reach and Kandy Hotels 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 Mahaweli Reach and Kandy Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mahaweli Reach Hotel and Kandy Hotels, you can compare the effects of market volatilities on Mahaweli Reach and Kandy Hotels 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 Mahaweli Reach with a short position of Kandy Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mahaweli Reach and Kandy Hotels.

Diversification Opportunities for Mahaweli Reach and Kandy Hotels

0.55

Correlation Coefficient

Mahaweli Reach  Kandy Hotels

Very weak diversification

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

Pair Corralation between Mahaweli Reach and Kandy Hotels

Assuming the 90 days trading horizon Mahaweli Reach Hotel is expected to generate 1.42 times more return on investment than Kandy Hotels. However, Mahaweli Reach is 1.42 times more volatile than Kandy Hotels. It trades about 0.08 of its potential returns per unit of risk. Kandy Hotels is currently generating about -0.15 per unit of risk. If you would invest  1,840  in Mahaweli Reach Hotel on December 4, 2024 and sell it today you would earn a total of  200.00  from holding Mahaweli Reach Hotel or generate 10.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Mahaweli Reach Hotel  vs.  Kandy Hotels

Mahaweli Reach Hotel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mahaweli Reach Hotel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mahaweli Reach sustained solid returns over the last few months and may actually be approaching a breakup point.

Kandy Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kandy Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Mahaweli Reach and Kandy Hotels

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

The idea behind Mahaweli Reach Hotel and Kandy Hotels 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.