Correlation Between Tangerine Beach and Seylan Bank

Can any of the company-specific risk be diversified away by investing in both Tangerine Beach and Seylan Bank 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 Tangerine Beach and Seylan Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Tangerine Beach and Seylan Bank

0.87

Correlation Coefficient

Tangerine Beach  Seylan Bank

Very poor diversification

The 3 months correlation between Tangerine and Seylan is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tangerine Beach Hotels and Seylan Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seylan Bank PLC and Tangerine Beach 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 Tangerine Beach Hotels are associated (or correlated) with Seylan Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seylan Bank PLC has no effect on the direction of Tangerine Beach i.e., Tangerine Beach and Seylan Bank go up and down completely randomly.

Pair Corralation between Tangerine Beach and Seylan Bank

Assuming the 90 days trading horizon Tangerine Beach is expected to generate 1.51 times less return on investment than Seylan Bank. In addition to that, Tangerine Beach is 1.47 times more volatile than Seylan Bank PLC. It trades about 0.2 of its total potential returns per unit of risk. Seylan Bank PLC is currently generating about 0.44 per unit of volatility. If you would invest  5,100  in Seylan Bank PLC on October 25, 2024 and sell it today you would earn a total of  3,510  from holding Seylan Bank PLC or generate 68.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Tangerine Beach Hotels  vs.  Seylan Bank PLC

Tangerine Beach Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tangerine Beach Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tangerine Beach sustained solid returns over the last few months and may actually be approaching a breakup point.

Seylan Bank PLC

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Seylan Bank PLC are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Seylan Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tangerine Beach and Seylan Bank

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

The idea behind Tangerine Beach Hotels and Seylan Bank PLC 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.