Correlation Between National Development and Kandy Hotels

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

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

Diversification Opportunities for National Development and Kandy Hotels

0.6

Correlation Coefficient

National Development  Kandy Hotels

Poor diversification

The 3 months correlation between National and Kandy is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding National Development Bank and Kandy Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kandy Hotels and National Development 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 National Development Bank 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 National Development i.e., National Development and Kandy Hotels go up and down completely randomly.

Pair Corralation between National Development and Kandy Hotels

Assuming the 90 days trading horizon National Development Bank is expected to generate 1.71 times more return on investment than Kandy Hotels. However, National Development is 1.71 times more volatile than Kandy Hotels. It trades about 0.43 of its potential returns per unit of risk. Kandy Hotels is currently generating about -0.1 per unit of risk. If you would invest  8,440  in National Development Bank on October 12, 2024 and sell it today you would earn a total of  2,435  from holding National Development Bank or generate 28.85% return on investment over 90 days.

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

National Development Bank  vs.  Kandy Hotels

National Development Bank

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Development Bank are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Development sustained solid returns over the last few months and may actually be approaching a breakup point.

Kandy Hotels

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kandy Hotels are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kandy Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Development and Kandy Hotels

The main advantage of trading using opposite National Development and Kandy Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Development 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 National Development Bank 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.