Correlation Between Tal Lanka and Ceylon Cold

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

Diversification Opportunities for Tal Lanka and Ceylon Cold

0.66

Correlation Coefficient

Tal Lanka  Ceylon Cold

Poor diversification

The 3 months correlation between Tal and Ceylon is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tal Lanka Hotels and Ceylon Cold Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Cold Stores 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 Ceylon Cold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Cold Stores has no effect on the direction of Tal Lanka i.e., Tal Lanka and Ceylon Cold go up and down completely randomly.

Pair Corralation between Tal Lanka and Ceylon Cold

Assuming the 90 days trading horizon Tal Lanka Hotels is expected to generate 3.14 times more return on investment than Ceylon Cold. However, Tal Lanka is 3.14 times more volatile than Ceylon Cold Stores. It trades about 0.17 of its potential returns per unit of risk. Ceylon Cold Stores is currently generating about 0.22 per unit of risk. If you would invest  1,920  in Tal Lanka Hotels on September 17, 2024 and sell it today you would earn a total of  180.00  from holding Tal Lanka Hotels or generate 9.38% return on investment over 90 days.

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

Tal Lanka Hotels  vs.  Ceylon Cold Stores

Tal Lanka Hotels

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tal Lanka Hotels are ranked lower than 8 (%) 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.

Ceylon Cold Stores

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Cold Stores are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Cold sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tal Lanka and Ceylon Cold

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

The idea behind Tal Lanka Hotels and Ceylon Cold Stores 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.