Correlation Between Serendib Hotels and Madulsima Plantations

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

Diversification Opportunities for Serendib Hotels and Madulsima Plantations

0.84

Correlation Coefficient

Serendib Hotels  Madulsima Plantations

Very poor diversification

The 3 months correlation between Serendib and Madulsima is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Serendib Hotels PLC and Madulsima Plantations PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madulsima Plantations PLC 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 Madulsima Plantations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madulsima Plantations PLC has no effect on the direction of Serendib Hotels i.e., Serendib Hotels and Madulsima Plantations go up and down completely randomly.

Pair Corralation between Serendib Hotels and Madulsima Plantations

Assuming the 90 days trading horizon Serendib Hotels PLC is expected to generate 0.61 times more return on investment than Madulsima Plantations. However, Serendib Hotels PLC is 1.64 times less risky than Madulsima Plantations. It trades about 0.23 of its potential returns per unit of risk. Madulsima Plantations PLC is currently generating about -0.1 per unit of risk. If you would invest  2,010  in Serendib Hotels PLC on October 10, 2024 and sell it today you would earn a total of  190.00  from holding Serendib Hotels PLC or generate 9.45% return on investment over 90 days.

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

Serendib Hotels PLC  vs.  Madulsima Plantations PLC

Serendib Hotels PLC

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Serendib Hotels PLC are ranked lower than 23 (%) 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.

Madulsima Plantations PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madulsima Plantations PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Madulsima Plantations sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Serendib Hotels and Madulsima Plantations

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

The idea behind Serendib Hotels PLC and Madulsima Plantations 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.