Correlation Between Singhe Hospitals and Lanka Milk

Can any of the company-specific risk be diversified away by investing in both Singhe Hospitals and Lanka Milk 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 Singhe Hospitals and Lanka Milk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Singhe Hospitals and Lanka Milk Foods, you can compare the effects of market volatilities on Singhe Hospitals and Lanka Milk 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 Singhe Hospitals with a short position of Lanka Milk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Singhe Hospitals and Lanka Milk.

Diversification Opportunities for Singhe Hospitals and Lanka Milk

0.59

Correlation Coefficient

Singhe Hospitals  Lanka Milk

Very weak diversification

The 3 months correlation between Singhe and Lanka is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Singhe Hospitals and Lanka Milk Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Milk Foods and Singhe Hospitals 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 Singhe Hospitals are associated (or correlated) with Lanka Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Milk Foods has no effect on the direction of Singhe Hospitals i.e., Singhe Hospitals and Lanka Milk go up and down completely randomly.

Pair Corralation between Singhe Hospitals and Lanka Milk

Assuming the 90 days trading horizon Singhe Hospitals is expected to generate 1.32 times more return on investment than Lanka Milk. However, Singhe Hospitals is 1.32 times more volatile than Lanka Milk Foods. It trades about 0.04 of its potential returns per unit of risk. Lanka Milk Foods is currently generating about -0.01 per unit of risk. If you would invest  270.00  in Singhe Hospitals on December 25, 2024 and sell it today you would earn a total of  10.00  from holding Singhe Hospitals or generate 3.7% return on investment over 90 days.

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

Singhe Hospitals  vs.  Lanka Milk Foods

Singhe Hospitals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Singhe Hospitals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Singhe Hospitals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lanka Milk Foods

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Singhe Hospitals and Lanka Milk

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

The idea behind Singhe Hospitals and Lanka Milk Foods 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.