Correlation Between Tal Lanka and Aitken Spence

Can any of the company-specific risk be diversified away by investing in both Tal 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 Tal 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 Tal Lanka Hotels and Aitken Spence Hotel, you can compare the effects of market volatilities on Tal 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 Tal Lanka with a short position of Aitken Spence. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tal Lanka and Aitken Spence.

Diversification Opportunities for Tal Lanka and Aitken Spence

0.94

Correlation Coefficient

Tal Lanka  Aitken Spence

Almost no diversification

The 3 months correlation between Tal and Aitken is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Tal Lanka Hotels 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 Tal 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 Tal Lanka Hotels 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 Tal Lanka i.e., Tal Lanka and Aitken Spence go up and down completely randomly.

Pair Corralation between Tal Lanka and Aitken Spence

Assuming the 90 days trading horizon Tal Lanka is expected to generate 1.42 times less return on investment than Aitken Spence. In addition to that, Tal Lanka is 1.8 times more volatile than Aitken Spence Hotel. It trades about 0.03 of its total potential returns per unit of risk. Aitken Spence Hotel is currently generating about 0.09 per unit of volatility. If you would invest  6,760  in Aitken Spence Hotel on October 8, 2024 and sell it today you would earn a total of  1,720  from holding Aitken Spence Hotel or generate 25.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	90.91%
Values	Daily Returns

Tal Lanka Hotels  vs.  Aitken Spence Hotel

Tal Lanka Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tal Lanka Hotels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tal Lanka sustained solid returns over the last few months and may actually be approaching a breakup point.

Aitken Spence Hotel

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aitken Spence Hotel are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aitken Spence sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tal Lanka and Aitken Spence

The main advantage of trading using opposite Tal Lanka and Aitken Spence positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tal 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 Tal Lanka Hotels 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 Transaction History module to view history of all your transactions and understand their impact on performance.