Correlation Between Renuka Agri and Ceylon Hospitals

Can any of the company-specific risk be diversified away by investing in both Renuka Agri and Ceylon 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 Renuka Agri and Ceylon Hospitals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Renuka Agri Foods and Ceylon Hospitals PLC, you can compare the effects of market volatilities on Renuka Agri and Ceylon 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 Renuka Agri with a short position of Ceylon Hospitals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renuka Agri and Ceylon Hospitals.

Diversification Opportunities for Renuka Agri and Ceylon Hospitals

0.5

Correlation Coefficient

Renuka Agri  Ceylon Hospitals

Very weak diversification

The 3 months correlation between Renuka and Ceylon is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Renuka Agri Foods and Ceylon Hospitals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Hospitals PLC and Renuka Agri 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 Renuka Agri Foods are associated (or correlated) with Ceylon Hospitals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Hospitals PLC has no effect on the direction of Renuka Agri i.e., Renuka Agri and Ceylon Hospitals go up and down completely randomly.

Pair Corralation between Renuka Agri and Ceylon Hospitals

Assuming the 90 days trading horizon Renuka Agri Foods is expected to under-perform the Ceylon Hospitals. In addition to that, Renuka Agri is 1.02 times more volatile than Ceylon Hospitals PLC. It trades about -0.05 of its total potential returns per unit of risk. Ceylon Hospitals PLC is currently generating about 0.1 per unit of volatility. If you would invest  11,500  in Ceylon Hospitals PLC on December 5, 2024 and sell it today you would earn a total of  900.00  from holding Ceylon Hospitals PLC or generate 7.83% return on investment over 90 days.

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

Renuka Agri Foods  vs.  Ceylon Hospitals PLC

Renuka Agri Foods

Risk-Adjusted Performance

Very Weak

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

Ceylon Hospitals PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Hospitals PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Hospitals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Renuka Agri and Ceylon Hospitals

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

The idea behind Renuka Agri Foods and Ceylon Hospitals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.