Correlation Between Union Chemicals and Galadari Hotels

Can any of the company-specific risk be diversified away by investing in both Union Chemicals and Galadari Hotels 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 Union Chemicals and Galadari Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Union Chemicals and Galadari Hotels

0.52

Correlation Coefficient

Union Chemicals  Galadari Hotels

Very weak diversification

The 3 months correlation between Union and Galadari is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Union Chemicals Lanka and Galadari Hotels Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galadari Hotels Lanka and Union Chemicals 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 Union Chemicals Lanka are associated (or correlated) with Galadari Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galadari Hotels Lanka has no effect on the direction of Union Chemicals i.e., Union Chemicals and Galadari Hotels go up and down completely randomly.

Pair Corralation between Union Chemicals and Galadari Hotels

Assuming the 90 days trading horizon Union Chemicals is expected to generate 8.99 times less return on investment than Galadari Hotels. But when comparing it to its historical volatility, Union Chemicals Lanka is 3.48 times less risky than Galadari Hotels. It trades about 0.09 of its potential returns per unit of risk. Galadari Hotels Lanka is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,580  in Galadari Hotels Lanka on October 6, 2024 and sell it today you would earn a total of  520.00  from holding Galadari Hotels Lanka or generate 32.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.12%
Values	Daily Returns

Union Chemicals Lanka  vs.  Galadari Hotels Lanka

Union Chemicals Lanka

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Galadari Hotels Lanka

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Galadari Hotels Lanka are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Galadari Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Union Chemicals and Galadari Hotels

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

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