Correlation Between Sri Lanka and Aitken Spence

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

By analyzing existing cross correlation between Sri Lanka Telecom and Aitken Spence Hotel, you can compare the effects of market volatilities on Sri Lanka and Aitken Spence 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 Sri Lanka with a short position of Aitken Spence. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sri Lanka and Aitken Spence.

Diversification Opportunities for Sri Lanka and Aitken Spence

0.24

Correlation Coefficient

Sri Lanka  Aitken Spence

Modest diversification

The 3 months correlation between Sri and Aitken is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Sri Lanka Telecom and Aitken Spence Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aitken Spence Hotel and Sri Lanka 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 Sri Lanka Telecom are associated (or correlated) with Aitken Spence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aitken Spence Hotel has no effect on the direction of Sri Lanka i.e., Sri Lanka and Aitken Spence go up and down completely randomly.

Pair Corralation between Sri Lanka and Aitken Spence

Assuming the 90 days trading horizon Sri Lanka Telecom is expected to under-perform the Aitken Spence. But the stock apears to be less risky and, when comparing its historical volatility, Sri Lanka Telecom is 1.26 times less risky than Aitken Spence. The stock trades about -0.18 of its potential returns per unit of risk. The Aitken Spence Hotel is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  8,490  in Aitken Spence Hotel on December 25, 2024 and sell it today you would lose (370.00) from holding Aitken Spence Hotel or give up 4.36% of portfolio value over 90 days.

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

Sri Lanka Telecom  vs.  Aitken Spence Hotel

Sri Lanka Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sri Lanka Telecom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Aitken Spence Hotel

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sri Lanka and Aitken Spence

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

The idea behind Sri Lanka Telecom and Aitken Spence 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.