Correlation Between Tal Lanka and Arpico Insurance

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

Diversification Opportunities for Tal Lanka and Arpico Insurance

0.28

Correlation Coefficient

Tal Lanka  Arpico Insurance

Modest diversification

The 3 months correlation between Tal and Arpico is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Tal Lanka Hotels and Arpico Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arpico Insurance 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 Arpico Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arpico Insurance has no effect on the direction of Tal Lanka i.e., Tal Lanka and Arpico Insurance go up and down completely randomly.

Pair Corralation between Tal Lanka and Arpico Insurance

Assuming the 90 days trading horizon Tal Lanka Hotels is expected to generate 0.93 times more return on investment than Arpico Insurance. However, Tal Lanka Hotels is 1.07 times less risky than Arpico Insurance. It trades about 0.01 of its potential returns per unit of risk. Arpico Insurance is currently generating about -0.02 per unit of risk. If you would invest  2,200  in Tal Lanka Hotels on December 24, 2024 and sell it today you would lose (10.00) from holding Tal Lanka Hotels or give up 0.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	87.5%
Values	Daily Returns

Tal Lanka Hotels  vs.  Arpico Insurance

Tal Lanka Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tal Lanka Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tal Lanka is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arpico Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arpico Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Arpico Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tal Lanka and Arpico Insurance

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

The idea behind Tal Lanka Hotels and Arpico Insurance 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.