Correlation Between Renuka Agri and Ceylinco Insurance

Can any of the company-specific risk be diversified away by investing in both Renuka Agri and Ceylinco Insurance 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 Ceylinco Insurance 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 Ceylinco Insurance PLC, you can compare the effects of market volatilities on Renuka Agri and Ceylinco Insurance 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 Ceylinco Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renuka Agri and Ceylinco Insurance.

Diversification Opportunities for Renuka Agri and Ceylinco Insurance

0.01

Correlation Coefficient

Renuka Agri  Ceylinco Insurance

Significant diversification

The 3 months correlation between Renuka and Ceylinco is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Renuka Agri Foods and Ceylinco Insurance PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylinco Insurance 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 Ceylinco Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylinco Insurance PLC has no effect on the direction of Renuka Agri i.e., Renuka Agri and Ceylinco Insurance go up and down completely randomly.

Pair Corralation between Renuka Agri and Ceylinco Insurance

Assuming the 90 days trading horizon Renuka Agri is expected to generate 1.1 times less return on investment than Ceylinco Insurance. In addition to that, Renuka Agri is 1.27 times more volatile than Ceylinco Insurance PLC. It trades about 0.13 of its total potential returns per unit of risk. Ceylinco Insurance PLC is currently generating about 0.19 per unit of volatility. If you would invest  222,025  in Ceylinco Insurance PLC on September 17, 2024 and sell it today you would earn a total of  32,750  from holding Ceylinco Insurance PLC or generate 14.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	55.0%
Values	Daily Returns

Renuka Agri Foods  vs.  Ceylinco Insurance PLC

Renuka Agri Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Renuka Agri Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Renuka Agri sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylinco Insurance PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylinco Insurance PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylinco Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Renuka Agri and Ceylinco Insurance

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

The idea behind Renuka Agri Foods and Ceylinco Insurance 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.