Correlation Between Ceylon Cold and Lanka Realty

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

By analyzing existing cross correlation between Ceylon Cold Stores and Lanka Realty Investments, you can compare the effects of market volatilities on Ceylon Cold and Lanka Realty 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 Ceylon Cold with a short position of Lanka Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ceylon Cold and Lanka Realty.

Diversification Opportunities for Ceylon Cold and Lanka Realty

0.28

Correlation Coefficient

Ceylon Cold  Lanka Realty

Modest diversification

The 3 months correlation between Ceylon and Lanka is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Cold Stores and Lanka Realty Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Realty Investments and Ceylon Cold 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 Ceylon Cold Stores are associated (or correlated) with Lanka Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Realty Investments has no effect on the direction of Ceylon Cold i.e., Ceylon Cold and Lanka Realty go up and down completely randomly.

Pair Corralation between Ceylon Cold and Lanka Realty

Assuming the 90 days trading horizon Ceylon Cold Stores is expected to generate 0.55 times more return on investment than Lanka Realty. However, Ceylon Cold Stores is 1.82 times less risky than Lanka Realty. It trades about 0.25 of its potential returns per unit of risk. Lanka Realty Investments is currently generating about 0.07 per unit of risk. If you would invest  5,250  in Ceylon Cold Stores on September 15, 2024 and sell it today you would earn a total of  1,450  from holding Ceylon Cold Stores or generate 27.62% return on investment over 90 days.

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

Ceylon Cold Stores  vs.  Lanka Realty Investments

Ceylon Cold Stores

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Cold Stores are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Cold sustained solid returns over the last few months and may actually be approaching a breakup point.

Lanka Realty Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lanka Realty Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lanka Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ceylon Cold and Lanka Realty

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

The idea behind Ceylon Cold Stores and Lanka Realty Investments 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.