Correlation Between Trans Asia and Sigiriya Village

Can any of the company-specific risk be diversified away by investing in both Trans Asia and Sigiriya Village 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 Trans Asia and Sigiriya Village into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Trans Asia Hotels and Sigiriya Village Hotels, you can compare the effects of market volatilities on Trans Asia and Sigiriya Village 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 Trans Asia with a short position of Sigiriya Village. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trans Asia and Sigiriya Village.

Diversification Opportunities for Trans Asia and Sigiriya Village

0.7

Correlation Coefficient

Trans Asia  Sigiriya Village

Poor diversification

The 3 months correlation between Trans and Sigiriya is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Trans Asia Hotels and Sigiriya Village Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigiriya Village Hotels and Trans Asia 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 Trans Asia Hotels are associated (or correlated) with Sigiriya Village. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigiriya Village Hotels has no effect on the direction of Trans Asia i.e., Trans Asia and Sigiriya Village go up and down completely randomly.

Pair Corralation between Trans Asia and Sigiriya Village

Assuming the 90 days trading horizon Trans Asia is expected to generate 12.3 times less return on investment than Sigiriya Village. But when comparing it to its historical volatility, Trans Asia Hotels is 3.01 times less risky than Sigiriya Village. It trades about 0.1 of its potential returns per unit of risk. Sigiriya Village Hotels is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  3,510  in Sigiriya Village Hotels on October 11, 2024 and sell it today you would earn a total of  4,910  from holding Sigiriya Village Hotels or generate 139.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.22%
Values	Daily Returns

Trans Asia Hotels  vs.  Sigiriya Village Hotels

Trans Asia Hotels

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trans Asia Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trans Asia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sigiriya Village Hotels

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sigiriya Village Hotels are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sigiriya Village sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trans Asia and Sigiriya Village

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

The idea behind Trans Asia Hotels and Sigiriya Village Hotels 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.