Correlation Between Serendib Hotels and Arpico Insurance

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

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

Diversification Opportunities for Serendib Hotels and Arpico Insurance

0.37

Correlation Coefficient

Serendib Hotels  Arpico Insurance

Weak diversification

The 3 months correlation between Serendib and Arpico is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Serendib Hotels PLC and Arpico Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arpico Insurance and Serendib Hotels 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 Serendib Hotels PLC are associated (or correlated) with Arpico Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arpico Insurance has no effect on the direction of Serendib Hotels i.e., Serendib Hotels and Arpico Insurance go up and down completely randomly.

Pair Corralation between Serendib Hotels and Arpico Insurance

Assuming the 90 days trading horizon Serendib Hotels PLC is expected to under-perform the Arpico Insurance. In addition to that, Serendib Hotels is 1.15 times more volatile than Arpico Insurance. It trades about -0.21 of its total potential returns per unit of risk. Arpico Insurance is currently generating about 0.02 per unit of volatility. If you would invest  2,700  in Arpico Insurance on December 5, 2024 and sell it today you would earn a total of  10.00  from holding Arpico Insurance or generate 0.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	84.21%
Values	Daily Returns

Serendib Hotels PLC  vs.  Arpico Insurance

Serendib Hotels PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Serendib Hotels PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Serendib Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arpico Insurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arpico Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arpico Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Serendib Hotels and Arpico Insurance

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

The idea behind Serendib Hotels PLC and Arpico Insurance 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.