Correlation Between Serendib Hotels and Mahaweli Reach

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

Diversification Opportunities for Serendib Hotels and Mahaweli Reach

0.84

Correlation Coefficient

Serendib Hotels  Mahaweli Reach

Very poor diversification

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

Pair Corralation between Serendib Hotels and Mahaweli Reach

Assuming the 90 days trading horizon Serendib Hotels PLC is expected to generate 0.69 times more return on investment than Mahaweli Reach. However, Serendib Hotels PLC is 1.46 times less risky than Mahaweli Reach. It trades about 0.35 of its potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about 0.21 per unit of risk. If you would invest  1,230  in Serendib Hotels PLC on September 12, 2024 and sell it today you would earn a total of  770.00  from holding Serendib Hotels PLC or generate 62.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

Serendib Hotels PLC  vs.  Mahaweli Reach Hotel

Serendib Hotels PLC

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Serendib Hotels PLC are ranked lower than 27 (%) 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.

Mahaweli Reach Hotel

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Serendib Hotels and Mahaweli Reach

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

The idea behind Serendib Hotels PLC and Mahaweli Reach Hotel 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.