Correlation Between Sampath Bank and Ceylon Hospitals

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

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

Diversification Opportunities for Sampath Bank and Ceylon Hospitals

0.58

Correlation Coefficient

Sampath Bank  Ceylon Hospitals

Very weak diversification

The 3 months correlation between Sampath and Ceylon is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sampath Bank PLC 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 Sampath Bank 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 Sampath Bank PLC 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 Sampath Bank i.e., Sampath Bank and Ceylon Hospitals go up and down completely randomly.

Pair Corralation between Sampath Bank and Ceylon Hospitals

Assuming the 90 days trading horizon Sampath Bank is expected to generate 1.25 times less return on investment than Ceylon Hospitals. But when comparing it to its historical volatility, Sampath Bank PLC is 1.64 times less risky than Ceylon Hospitals. It trades about 0.09 of its potential returns per unit of risk. Ceylon Hospitals PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11,625  in Ceylon Hospitals PLC on December 26, 2024 and sell it today you would earn a total of  1,025  from holding Ceylon Hospitals PLC or generate 8.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.25%
Values	Daily Returns

Sampath Bank PLC  vs.  Ceylon Hospitals PLC

Sampath Bank PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sampath Bank PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sampath Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Sampath Bank and Ceylon Hospitals

The main advantage of trading using opposite Sampath Bank and Ceylon Hospitals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sampath Bank 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 Sampath Bank PLC 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.