Correlation Between Pan Asia and Lanka Ceramic

Can any of the company-specific risk be diversified away by investing in both Pan Asia and Lanka Ceramic 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 Pan Asia and Lanka Ceramic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pan Asia Banking and Lanka Ceramic PLC, you can compare the effects of market volatilities on Pan Asia and Lanka Ceramic 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 Pan Asia with a short position of Lanka Ceramic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pan Asia and Lanka Ceramic.

Diversification Opportunities for Pan Asia and Lanka Ceramic

0.79

Correlation Coefficient

Pan Asia  Lanka Ceramic

Poor diversification

The 3 months correlation between Pan and Lanka is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Pan Asia Banking and Lanka Ceramic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Ceramic PLC and Pan Asia 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 Pan Asia Banking are associated (or correlated) with Lanka Ceramic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Ceramic PLC has no effect on the direction of Pan Asia i.e., Pan Asia and Lanka Ceramic go up and down completely randomly.

Pair Corralation between Pan Asia and Lanka Ceramic

Assuming the 90 days trading horizon Pan Asia Banking is expected to generate 1.1 times more return on investment than Lanka Ceramic. However, Pan Asia is 1.1 times more volatile than Lanka Ceramic PLC. It trades about 0.1 of its potential returns per unit of risk. Lanka Ceramic PLC is currently generating about -0.02 per unit of risk. If you would invest  3,120  in Pan Asia Banking on December 24, 2024 and sell it today you would earn a total of  410.00  from holding Pan Asia Banking or generate 13.14% return on investment over 90 days.

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

Pan Asia Banking  vs.  Lanka Ceramic PLC

Pan Asia Banking

Risk-Adjusted Performance

OK

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

Lanka Ceramic PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lanka Ceramic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lanka Ceramic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pan Asia and Lanka Ceramic

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

The idea behind Pan Asia Banking and Lanka Ceramic PLC 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.