Correlation Between Renuka City and Sri Lanka

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

By analyzing existing cross correlation between Renuka City Hotel and Sri Lanka Telecom, you can compare the effects of market volatilities on Renuka City and Sri Lanka 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 City with a short position of Sri Lanka. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renuka City and Sri Lanka.

Diversification Opportunities for Renuka City and Sri Lanka

0.27

Correlation Coefficient

Renuka City  Sri Lanka

Modest diversification

The 3 months correlation between Renuka and Sri is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Renuka City Hotel and Sri Lanka Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sri Lanka Telecom and Renuka City 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 City Hotel are associated (or correlated) with Sri Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sri Lanka Telecom has no effect on the direction of Renuka City i.e., Renuka City and Sri Lanka go up and down completely randomly.

Pair Corralation between Renuka City and Sri Lanka

Assuming the 90 days trading horizon Renuka City Hotel is expected to generate 0.9 times more return on investment than Sri Lanka. However, Renuka City Hotel is 1.11 times less risky than Sri Lanka. It trades about 0.04 of its potential returns per unit of risk. Sri Lanka Telecom is currently generating about 0.02 per unit of risk. If you would invest  35,125  in Renuka City Hotel on October 11, 2024 and sell it today you would earn a total of  8,875  from holding Renuka City Hotel or generate 25.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	73.89%
Values	Daily Returns

Renuka City Hotel  vs.  Sri Lanka Telecom

Renuka City Hotel

Risk-Adjusted Performance

10 of 100

OK

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

Sri Lanka Telecom

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sri Lanka Telecom are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sri Lanka may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Renuka City and Sri Lanka

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

The idea behind Renuka City Hotel and Sri Lanka Telecom 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.