Correlation Between THE KINGSBURY and Serendib Hotels

Can any of the company-specific risk be diversified away by investing in both THE KINGSBURY and Serendib 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 THE KINGSBURY and Serendib Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for THE KINGSBURY and Serendib Hotels

0.92

Correlation Coefficient

THE KINGSBURY  Serendib Hotels

Almost no diversification

The 3 months correlation between THE and Serendib is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding THE KINGSBURY PLC and Serendib Hotels PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Serendib Hotels PLC and THE KINGSBURY 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 THE KINGSBURY PLC are associated (or correlated) with Serendib Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Serendib Hotels PLC has no effect on the direction of THE KINGSBURY i.e., THE KINGSBURY and Serendib Hotels go up and down completely randomly.

Pair Corralation between THE KINGSBURY and Serendib Hotels

Assuming the 90 days trading horizon THE KINGSBURY PLC is expected to generate 1.16 times more return on investment than Serendib Hotels. However, THE KINGSBURY is 1.16 times more volatile than Serendib Hotels PLC. It trades about 0.19 of its potential returns per unit of risk. Serendib Hotels PLC is currently generating about 0.18 per unit of risk. If you would invest  1,200  in THE KINGSBURY PLC on October 12, 2024 and sell it today you would earn a total of  110.00  from holding THE KINGSBURY PLC or generate 9.17% return on investment over 90 days.

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

THE KINGSBURY PLC  vs.  Serendib Hotels PLC

THE KINGSBURY PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in THE KINGSBURY PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, THE KINGSBURY sustained solid returns over the last few months and may actually be approaching a breakup point.

Serendib Hotels PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Serendib Hotels PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Serendib Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with THE KINGSBURY and Serendib Hotels

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

The idea behind THE KINGSBURY PLC and Serendib Hotels 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.