Correlation Between HNB Finance and Lion Brewery

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

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

Diversification Opportunities for HNB Finance and Lion Brewery

-0.69

Correlation Coefficient

HNB Finance  Lion Brewery

Excellent diversification

The 3 months correlation between HNB and Lion is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding HNB Finance 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 HNB Finance 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 HNB Finance 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 HNB Finance i.e., HNB Finance and Lion Brewery go up and down completely randomly.

Pair Corralation between HNB Finance and Lion Brewery

Assuming the 90 days trading horizon HNB Finance is expected to under-perform the Lion Brewery. In addition to that, HNB Finance is 1.85 times more volatile than Lion Brewery Ceylon. It trades about -0.01 of its total potential returns per unit of risk. Lion Brewery Ceylon is currently generating about 0.18 per unit of volatility. If you would invest  96,100  in Lion Brewery Ceylon on September 26, 2024 and sell it today you would earn a total of  27,850  from holding Lion Brewery Ceylon or generate 28.98% return on investment over 90 days.

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

HNB Finance  vs.  Lion Brewery Ceylon

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNB Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HNB Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lion Brewery Ceylon

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Brewery Ceylon are ranked lower than 14 (%) 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 HNB Finance and Lion Brewery

The main advantage of trading using opposite HNB Finance and Lion Brewery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HNB Finance 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 HNB Finance 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.