Correlation Between HATTON NATIONAL and Ceylon Tobacco

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

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

Diversification Opportunities for HATTON NATIONAL and Ceylon Tobacco

0.68

Correlation Coefficient

HATTON NATIONAL  Ceylon Tobacco

Poor diversification

The 3 months correlation between HATTON and Ceylon is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding HATTON NATIONAL BANK and Ceylon Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Tobacco and HATTON NATIONAL 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 HATTON NATIONAL BANK are associated (or correlated) with Ceylon Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Tobacco has no effect on the direction of HATTON NATIONAL i.e., HATTON NATIONAL and Ceylon Tobacco go up and down completely randomly.

Pair Corralation between HATTON NATIONAL and Ceylon Tobacco

Assuming the 90 days trading horizon HATTON NATIONAL BANK is expected to generate 1.96 times more return on investment than Ceylon Tobacco. However, HATTON NATIONAL is 1.96 times more volatile than Ceylon Tobacco. It trades about 0.32 of its potential returns per unit of risk. Ceylon Tobacco is currently generating about 0.11 per unit of risk. If you would invest  13,300  in HATTON NATIONAL BANK on September 4, 2024 and sell it today you would earn a total of  5,450  from holding HATTON NATIONAL BANK or generate 40.98% return on investment over 90 days.

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

HATTON NATIONAL BANK  vs.  Ceylon Tobacco

HATTON NATIONAL BANK

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HATTON NATIONAL BANK are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HATTON NATIONAL sustained solid returns over the last few months and may actually be approaching a breakup point.

Ceylon Tobacco

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Tobacco are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Tobacco may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HATTON NATIONAL and Ceylon Tobacco

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

The idea behind HATTON NATIONAL BANK and Ceylon Tobacco 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.