Correlation Between Nations Trust and Lion Brewery

Can any of the company-specific risk be diversified away by investing in both Nations Trust and Lion Brewery 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 Nations Trust and Lion Brewery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nations Trust Bank and Lion Brewery Ceylon, you can compare the effects of market volatilities on Nations Trust and Lion Brewery 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 Nations Trust with a short position of Lion Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nations Trust and Lion Brewery.

Diversification Opportunities for Nations Trust and Lion Brewery

0.34

Correlation Coefficient

Nations Trust  Lion Brewery

Weak diversification

The 3 months correlation between Nations and Lion is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Nations Trust Bank and Lion Brewery Ceylon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Brewery Ceylon and Nations Trust 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 Nations Trust Bank are associated (or correlated) with Lion Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Brewery Ceylon has no effect on the direction of Nations Trust i.e., Nations Trust and Lion Brewery go up and down completely randomly.

Pair Corralation between Nations Trust and Lion Brewery

Assuming the 90 days trading horizon Nations Trust is expected to generate 2.24 times less return on investment than Lion Brewery. But when comparing it to its historical volatility, Nations Trust Bank is 1.02 times less risky than Lion Brewery. It trades about 0.03 of its potential returns per unit of risk. Lion Brewery Ceylon is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  120,000  in Lion Brewery Ceylon on December 30, 2024 and sell it today you would earn a total of  8,000  from holding Lion Brewery Ceylon or generate 6.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Nations Trust Bank  vs.  Lion Brewery Ceylon

Nations Trust Bank

Risk-Adjusted Performance

Weak

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

Lion Brewery Ceylon

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Brewery Ceylon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lion Brewery may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nations Trust and Lion Brewery

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

The idea behind Nations Trust Bank and Lion Brewery Ceylon 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.