Correlation Between Sri Lanka and Renuka City

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

Diversification Opportunities for Sri Lanka and Renuka City

-0.57

Correlation Coefficient

Sri Lanka  Renuka City

Excellent diversification

The 3 months correlation between Sri and Renuka is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sri Lanka Telecom and Renuka City Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renuka City 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 Renuka City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renuka City Hotel has no effect on the direction of Sri Lanka i.e., Sri Lanka and Renuka City go up and down completely randomly.

Pair Corralation between Sri Lanka and Renuka City

Assuming the 90 days trading horizon Sri Lanka Telecom is expected to under-perform the Renuka City. But the stock apears to be less risky and, when comparing its historical volatility, Sri Lanka Telecom is 1.98 times less risky than Renuka City. The stock trades about -0.18 of its potential returns per unit of risk. The Renuka City Hotel is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  41,000  in Renuka City Hotel on December 25, 2024 and sell it today you would earn a total of  5,825  from holding Renuka City Hotel or generate 14.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.64%
Values	Daily Returns

Sri Lanka Telecom  vs.  Renuka City 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.

Renuka City Hotel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Renuka City Hotel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Renuka City sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sri Lanka and Renuka City

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

The idea behind Sri Lanka Telecom and Renuka City 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.