Correlation Between Sampath Bank and Kandy Hotels

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

Diversification Opportunities for Sampath Bank and Kandy Hotels

0.77

Correlation Coefficient

Sampath Bank  Kandy Hotels

Poor diversification

The 3 months correlation between Sampath and Kandy is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sampath Bank PLC and Kandy Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kandy Hotels 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 Kandy Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kandy Hotels has no effect on the direction of Sampath Bank i.e., Sampath Bank and Kandy Hotels go up and down completely randomly.

Pair Corralation between Sampath Bank and Kandy Hotels

Assuming the 90 days trading horizon Sampath Bank is expected to generate 1.62 times less return on investment than Kandy Hotels. But when comparing it to its historical volatility, Sampath Bank PLC is 2.53 times less risky than Kandy Hotels. It trades about 0.47 of its potential returns per unit of risk. Kandy Hotels is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  740.00  in Kandy Hotels on September 15, 2024 and sell it today you would earn a total of  580.00  from holding Kandy Hotels or generate 78.38% return on investment over 90 days.

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

Sampath Bank PLC  vs.  Kandy Hotels

Sampath Bank PLC

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sampath Bank PLC are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sampath Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Kandy Hotels

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kandy Hotels are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kandy Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sampath Bank and Kandy Hotels

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

The idea behind Sampath Bank PLC and Kandy Hotels 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.