Correlation Between SERENDIB HOTELS and Hotel Sigiriya

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

Diversification Opportunities for SERENDIB HOTELS and Hotel Sigiriya

0.95

Correlation Coefficient

SERENDIB HOTELS  Hotel Sigiriya

Almost no diversification

The 3 months correlation between SERENDIB and Hotel is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SERENDIB HOTELS PLC and Hotel Sigiriya PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotel Sigiriya 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 Hotel Sigiriya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotel Sigiriya PLC has no effect on the direction of SERENDIB HOTELS i.e., SERENDIB HOTELS and Hotel Sigiriya go up and down completely randomly.

Pair Corralation between SERENDIB HOTELS and Hotel Sigiriya

Assuming the 90 days trading horizon SERENDIB HOTELS PLC is expected to generate 1.15 times more return on investment than Hotel Sigiriya. However, SERENDIB HOTELS is 1.15 times more volatile than Hotel Sigiriya PLC. It trades about 0.09 of its potential returns per unit of risk. Hotel Sigiriya PLC is currently generating about 0.09 per unit of risk. If you would invest  520.00  in SERENDIB HOTELS PLC on October 7, 2024 and sell it today you would earn a total of  930.00  from holding SERENDIB HOTELS PLC or generate 178.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	94.88%
Values	Daily Returns

SERENDIB HOTELS PLC  vs.  Hotel Sigiriya PLC

SERENDIB HOTELS PLC

Risk-Adjusted Performance

19 of 100

Solid

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

Hotel Sigiriya PLC

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hotel Sigiriya PLC are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hotel Sigiriya sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SERENDIB HOTELS and Hotel Sigiriya

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

The idea behind SERENDIB HOTELS PLC and Hotel Sigiriya 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.