Correlation Between Eden Hotel and Union Chemicals

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

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

Diversification Opportunities for Eden Hotel and Union Chemicals

0.55

Correlation Coefficient

Eden Hotel  Union Chemicals

Very weak diversification

The 3 months correlation between Eden and Union is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Eden Hotel Lanka and Union Chemicals Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Chemicals Lanka and Eden Hotel 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 Eden Hotel Lanka are associated (or correlated) with Union Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Chemicals Lanka has no effect on the direction of Eden Hotel i.e., Eden Hotel and Union Chemicals go up and down completely randomly.

Pair Corralation between Eden Hotel and Union Chemicals

Assuming the 90 days trading horizon Eden Hotel Lanka is expected to generate 1.52 times more return on investment than Union Chemicals. However, Eden Hotel is 1.52 times more volatile than Union Chemicals Lanka. It trades about 0.25 of its potential returns per unit of risk. Union Chemicals Lanka is currently generating about 0.16 per unit of risk. If you would invest  1,150  in Eden Hotel Lanka on September 17, 2024 and sell it today you would earn a total of  450.00  from holding Eden Hotel Lanka or generate 39.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.33%
Values	Daily Returns

Eden Hotel Lanka  vs.  Union Chemicals Lanka

Eden Hotel Lanka

Risk-Adjusted Performance

19 of 100

Solid

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

Union Chemicals Lanka

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 12 (%) 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.

Pair Trading with Eden Hotel and Union Chemicals

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

The idea behind Eden Hotel Lanka and Union Chemicals 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.