Correlation Between VIDULLANKA PLC and Sri Lanka

Can any of the company-specific risk be diversified away by investing in both VIDULLANKA PLC and Sri Lanka 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 VIDULLANKA PLC and Sri Lanka into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for VIDULLANKA PLC and Sri Lanka

0.75

Correlation Coefficient

VIDULLANKA PLC  Sri Lanka

Poor diversification

The 3 months correlation between VIDULLANKA and Sri is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding VIDULLANKA PLC and Sri Lanka Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sri Lanka Telecom and VIDULLANKA PLC 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 VIDULLANKA PLC are associated (or correlated) with Sri Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sri Lanka Telecom has no effect on the direction of VIDULLANKA PLC i.e., VIDULLANKA PLC and Sri Lanka go up and down completely randomly.

Pair Corralation between VIDULLANKA PLC and Sri Lanka

Assuming the 90 days trading horizon VIDULLANKA PLC is expected to under-perform the Sri Lanka. But the stock apears to be less risky and, when comparing its historical volatility, VIDULLANKA PLC is 1.55 times less risky than Sri Lanka. The stock trades about -0.17 of its potential returns per unit of risk. The Sri Lanka Telecom is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  6,800  in Sri Lanka Telecom on September 19, 2024 and sell it today you would lose (130.00) from holding Sri Lanka Telecom or give up 1.91% of portfolio value over 90 days.

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

VIDULLANKA PLC  vs.  Sri Lanka Telecom

VIDULLANKA PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VIDULLANKA PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, VIDULLANKA PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Sri Lanka Telecom

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sri Lanka Telecom are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sri Lanka sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VIDULLANKA PLC and Sri Lanka

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

The idea behind VIDULLANKA PLC and Sri Lanka Telecom 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.