Correlation Between Sri Lanka and Galadari Hotels

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

Diversification Opportunities for Sri Lanka and Galadari Hotels

0.14

Correlation Coefficient

Sri Lanka  Galadari Hotels

Average diversification

The 3 months correlation between Sri and Galadari is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Sri Lanka Telecom and Galadari Hotels Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galadari Hotels Lanka 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 Galadari Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galadari Hotels Lanka has no effect on the direction of Sri Lanka i.e., Sri Lanka and Galadari Hotels go up and down completely randomly.

Pair Corralation between Sri Lanka and Galadari Hotels

Assuming the 90 days trading horizon Sri Lanka is expected to generate 28.74 times less return on investment than Galadari Hotels. But when comparing it to its historical volatility, Sri Lanka Telecom is 1.75 times less risky than Galadari Hotels. It trades about 0.01 of its potential returns per unit of risk. Galadari Hotels Lanka is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,560  in Galadari Hotels Lanka on October 23, 2024 and sell it today you would earn a total of  420.00  from holding Galadari Hotels Lanka or generate 26.92% return on investment over 90 days.

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

Sri Lanka Telecom  vs.  Galadari Hotels Lanka

Sri Lanka Telecom

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Sri Lanka is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Galadari Hotels Lanka

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Galadari Hotels Lanka are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Galadari Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sri Lanka and Galadari Hotels

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

The idea behind Sri Lanka Telecom and Galadari Hotels Lanka 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.