Correlation Between Sigiriya Village and Mahaweli Reach

Can any of the company-specific risk be diversified away by investing in both Sigiriya Village 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 Sigiriya Village and Mahaweli Reach into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sigiriya Village Hotels and Mahaweli Reach Hotel, you can compare the effects of market volatilities on Sigiriya Village 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 Sigiriya Village with a short position of Mahaweli Reach. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sigiriya Village and Mahaweli Reach.

Diversification Opportunities for Sigiriya Village and Mahaweli Reach

0.95

Correlation Coefficient

Sigiriya Village  Mahaweli Reach

Almost no diversification

The 3 months correlation between Sigiriya and Mahaweli is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Sigiriya Village Hotels 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 Sigiriya Village 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 Sigiriya Village Hotels 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 Sigiriya Village i.e., Sigiriya Village and Mahaweli Reach go up and down completely randomly.

Pair Corralation between Sigiriya Village and Mahaweli Reach

Assuming the 90 days trading horizon Sigiriya Village Hotels is expected to generate 1.89 times more return on investment than Mahaweli Reach. However, Sigiriya Village is 1.89 times more volatile than Mahaweli Reach Hotel. It trades about 0.3 of its potential returns per unit of risk. Mahaweli Reach Hotel is currently generating about 0.23 per unit of risk. If you would invest  6,250  in Sigiriya Village Hotels on October 10, 2024 and sell it today you would earn a total of  2,120  from holding Sigiriya Village Hotels or generate 33.92% return on investment over 90 days.

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

Sigiriya Village Hotels  vs.  Mahaweli Reach Hotel

Sigiriya Village Hotels

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sigiriya Village Hotels are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sigiriya Village sustained solid returns over the last few months and may actually be approaching a breakup point.

Mahaweli Reach Hotel

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mahaweli Reach Hotel are ranked lower than 19 (%) 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 Sigiriya Village and Mahaweli Reach

The main advantage of trading using opposite Sigiriya Village and Mahaweli Reach positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigiriya Village 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 Sigiriya Village Hotels 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.