Correlation Between Merchant Bank and Keells Food

Can any of the company-specific risk be diversified away by investing in both Merchant Bank and Keells Food 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 Merchant Bank and Keells Food into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merchant Bank of and Keells Food Products, you can compare the effects of market volatilities on Merchant Bank and Keells Food 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 Merchant Bank with a short position of Keells Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merchant Bank and Keells Food.

Diversification Opportunities for Merchant Bank and Keells Food

0.47

Correlation Coefficient

Merchant Bank  Keells Food

Very weak diversification

The 3 months correlation between Merchant and Keells is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merchant Bank of and Keells Food Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keells Food Products and Merchant Bank 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 Merchant Bank of are associated (or correlated) with Keells Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keells Food Products has no effect on the direction of Merchant Bank i.e., Merchant Bank and Keells Food go up and down completely randomly.

Pair Corralation between Merchant Bank and Keells Food

Assuming the 90 days trading horizon Merchant Bank is expected to generate 1.11 times less return on investment than Keells Food. In addition to that, Merchant Bank is 1.76 times more volatile than Keells Food Products. It trades about 0.07 of its total potential returns per unit of risk. Keells Food Products is currently generating about 0.13 per unit of volatility. If you would invest  15,500  in Keells Food Products on September 4, 2024 and sell it today you would earn a total of  1,600  from holding Keells Food Products or generate 10.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	77.97%
Values	Daily Returns

Merchant Bank of  vs.  Keells Food Products

Merchant Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merchant Bank of are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Merchant Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Keells Food Products

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Keells Food Products are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Keells Food sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merchant Bank and Keells Food

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

The idea behind Merchant Bank of and Keells Food Products 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.