Correlation Between Tal Lanka and E M

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

Diversification Opportunities for Tal Lanka and E M

0.26

Correlation Coefficient

Tal Lanka  E M

Modest diversification

The 3 months correlation between Tal and EMLN0000 is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tal Lanka Hotels and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L 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 E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Tal Lanka i.e., Tal Lanka and E M go up and down completely randomly.

Pair Corralation between Tal Lanka and E M

Assuming the 90 days trading horizon Tal Lanka Hotels is expected to under-perform the E M. But the stock apears to be less risky and, when comparing its historical volatility, Tal Lanka Hotels is 1.22 times less risky than E M. The stock trades about -0.04 of its potential returns per unit of risk. The E M L is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  390.00  in E M L on December 25, 2024 and sell it today you would lose (20.00) from holding E M L or give up 5.13% of portfolio value over 90 days.

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

Tal Lanka Hotels  vs.  E M L

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

E M L

Risk-Adjusted Performance

Very Weak

Over the last 90 days E M L has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, E M 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 E M

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

The idea behind Tal Lanka Hotels and E M L 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.