Correlation Between Ceylinco Insurance and Lion Brewery

Can any of the company-specific risk be diversified away by investing in both Ceylinco Insurance and Lion Brewery 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 Ceylinco Insurance and Lion Brewery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ceylinco Insurance PLC and Lion Brewery Ceylon, you can compare the effects of market volatilities on Ceylinco Insurance and Lion Brewery 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 Ceylinco Insurance with a short position of Lion Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ceylinco Insurance and Lion Brewery.

Diversification Opportunities for Ceylinco Insurance and Lion Brewery

0.27

Correlation Coefficient

Ceylinco Insurance  Lion Brewery

Modest diversification

The 3 months correlation between Ceylinco and Lion is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ceylinco Insurance PLC and Lion Brewery Ceylon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Brewery Ceylon and Ceylinco Insurance 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 Ceylinco Insurance PLC are associated (or correlated) with Lion Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Brewery Ceylon has no effect on the direction of Ceylinco Insurance i.e., Ceylinco Insurance and Lion Brewery go up and down completely randomly.

Pair Corralation between Ceylinco Insurance and Lion Brewery

Assuming the 90 days trading horizon Ceylinco Insurance PLC is expected to generate 1.0 times more return on investment than Lion Brewery. However, Ceylinco Insurance is 1.0 times more volatile than Lion Brewery Ceylon. It trades about 0.19 of its potential returns per unit of risk. Lion Brewery Ceylon is currently generating about 0.15 per unit of risk. If you would invest  222,025  in Ceylinco Insurance PLC on September 17, 2024 and sell it today you would earn a total of  32,750  from holding Ceylinco Insurance PLC or generate 14.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	55.93%
Values	Daily Returns

Ceylinco Insurance PLC  vs.  Lion Brewery Ceylon

Ceylinco Insurance PLC

Risk-Adjusted Performance

14 of 100

Good

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

Lion Brewery Ceylon

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Brewery Ceylon are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lion Brewery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ceylinco Insurance and Lion Brewery

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

The idea behind Ceylinco Insurance PLC and Lion Brewery Ceylon 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 Stocks Directory module to find actively traded stocks across global markets.