Correlation Between Convenience Foods and John Keells

Can any of the company-specific risk be diversified away by investing in both Convenience Foods and John Keells 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 Convenience Foods and John Keells into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Convenience Foods PLC and John Keells Hotels, you can compare the effects of market volatilities on Convenience Foods and John Keells 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 Convenience Foods with a short position of John Keells. Check out your portfolio center. Please also check ongoing floating volatility patterns of Convenience Foods and John Keells.

Diversification Opportunities for Convenience Foods and John Keells

0.65

Correlation Coefficient

Convenience Foods  John Keells

Poor diversification

The 3 months correlation between Convenience and John is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Convenience Foods PLC and John Keells Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Keells Hotels and Convenience Foods 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 Convenience Foods PLC are associated (or correlated) with John Keells. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Keells Hotels has no effect on the direction of Convenience Foods i.e., Convenience Foods and John Keells go up and down completely randomly.

Pair Corralation between Convenience Foods and John Keells

Assuming the 90 days trading horizon Convenience Foods is expected to generate 1.3 times less return on investment than John Keells. In addition to that, Convenience Foods is 1.19 times more volatile than John Keells Hotels. It trades about 0.15 of its total potential returns per unit of risk. John Keells Hotels is currently generating about 0.23 per unit of volatility. If you would invest  1,510  in John Keells Hotels on September 16, 2024 and sell it today you would earn a total of  370.00  from holding John Keells Hotels or generate 24.5% return on investment over 90 days.

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

Convenience Foods PLC  vs.  John Keells Hotels

Convenience Foods PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Convenience Foods PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Convenience Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

John Keells Hotels

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in John Keells Hotels are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, John Keells sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Convenience Foods and John Keells

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

The idea behind Convenience Foods PLC and John Keells 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.