Correlation Between Sri Lanka and Nuwara Eliya

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

Diversification Opportunities for Sri Lanka and Nuwara Eliya

-0.13

Correlation Coefficient

Sri Lanka  Nuwara Eliya

Good diversification

The 3 months correlation between Sri and Nuwara is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sri Lanka Telecom and Nuwara Eliya Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuwara Eliya Hotels 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 Nuwara Eliya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuwara Eliya Hotels has no effect on the direction of Sri Lanka i.e., Sri Lanka and Nuwara Eliya go up and down completely randomly.

Pair Corralation between Sri Lanka and Nuwara Eliya

Assuming the 90 days trading horizon Sri Lanka Telecom is expected to under-perform the Nuwara Eliya. But the stock apears to be less risky and, when comparing its historical volatility, Sri Lanka Telecom is 1.1 times less risky than Nuwara Eliya. The stock trades about -0.08 of its potential returns per unit of risk. The Nuwara Eliya Hotels is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  205,000  in Nuwara Eliya Hotels on December 24, 2024 and sell it today you would earn a total of  14,075  from holding Nuwara Eliya Hotels or generate 6.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.19%
Values	Daily Returns

Sri Lanka Telecom  vs.  Nuwara Eliya Hotels

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nuwara Eliya Hotels

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nuwara Eliya Hotels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nuwara Eliya may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sri Lanka and Nuwara Eliya

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

The idea behind Sri Lanka Telecom and Nuwara Eliya Hotels 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.