Correlation Between Lion Brewery and Sri Lanka

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Can any of the company-specific risk be diversified away by investing in both Lion Brewery and Sri Lanka 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 Lion Brewery and Sri Lanka into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lion Brewery Ceylon and Sri Lanka Telecom, you can compare the effects of market volatilities on Lion Brewery and Sri Lanka 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 Lion Brewery with a short position of Sri Lanka. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lion Brewery and Sri Lanka.

Diversification Opportunities for Lion Brewery and Sri Lanka

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between Lion and Sri is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lion Brewery Ceylon and Sri Lanka Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sri Lanka Telecom and Lion Brewery 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 Lion Brewery Ceylon are associated (or correlated) with Sri Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sri Lanka Telecom has no effect on the direction of Lion Brewery i.e., Lion Brewery and Sri Lanka go up and down completely randomly.

Pair Corralation between Lion Brewery and Sri Lanka

Assuming the 90 days trading horizon Lion Brewery Ceylon is expected to generate 2.18 times more return on investment than Sri Lanka. However, Lion Brewery is 2.18 times more volatile than Sri Lanka Telecom. It trades about 0.26 of its potential returns per unit of risk. Sri Lanka Telecom is currently generating about 0.11 per unit of risk. If you would invest  102,550  in Lion Brewery Ceylon on September 25, 2024 and sell it today you would earn a total of  16,400  from holding Lion Brewery Ceylon or generate 15.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Lion Brewery Ceylon  vs.  Sri Lanka Telecom

 Performance 
       Timeline  
Lion Brewery Ceylon 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lion Brewery Ceylon are ranked lower than 9 (%) 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.
Sri Lanka Telecom 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Sri Lanka Telecom are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sri Lanka may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lion Brewery and Sri Lanka Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lion Brewery and Sri Lanka

The main advantage of trading using opposite Lion Brewery and Sri Lanka positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lion Brewery position performs unexpectedly, Sri Lanka 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 Sri Lanka will offset losses from the drop in Sri Lanka's long position.
The idea behind Lion Brewery Ceylon and Sri Lanka Telecom 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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