Correlation Between Sampath Bank and Renuka Agri

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

Diversification Opportunities for Sampath Bank and Renuka Agri

0.77

Correlation Coefficient

Sampath Bank  Renuka Agri

Poor diversification

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

Pair Corralation between Sampath Bank and Renuka Agri

Assuming the 90 days trading horizon Sampath Bank PLC is expected to generate 0.62 times more return on investment than Renuka Agri. However, Sampath Bank PLC is 1.62 times less risky than Renuka Agri. It trades about 0.24 of its potential returns per unit of risk. Renuka Agri Foods is currently generating about -0.03 per unit of risk. If you would invest  9,980  in Sampath Bank PLC on December 4, 2024 and sell it today you would earn a total of  2,270  from holding Sampath Bank PLC or generate 22.75% 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.  Renuka Agri Foods

Sampath Bank PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sampath Bank PLC are ranked lower than 19 (%) 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.

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.

Pair Trading with Sampath Bank and Renuka Agri

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

The idea behind Sampath Bank PLC and Renuka Agri Foods 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.