Correlation Between National Development and Lanka Credit

Can any of the company-specific risk be diversified away by investing in both National Development and Lanka Credit 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 National Development and Lanka Credit into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for National Development and Lanka Credit

0.65

Correlation Coefficient

National Development  Lanka Credit

Poor diversification

The 3 months correlation between National and Lanka is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding National Development Bank and Lanka Credit and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanka Credit and National Development 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 National Development Bank are associated (or correlated) with Lanka Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanka Credit has no effect on the direction of National Development i.e., National Development and Lanka Credit go up and down completely randomly.

Pair Corralation between National Development and Lanka Credit

Assuming the 90 days trading horizon National Development is expected to generate 63.28 times less return on investment than Lanka Credit. But when comparing it to its historical volatility, National Development Bank is 2.39 times less risky than Lanka Credit. It trades about 0.01 of its potential returns per unit of risk. Lanka Credit and is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  220.00  in Lanka Credit and on September 15, 2024 and sell it today you would earn a total of  40.00  from holding Lanka Credit and or generate 18.18% return on investment over 90 days.

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

National Development Bank  vs.  Lanka Credit and

National Development Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Development Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Development sustained solid returns over the last few months and may actually be approaching a breakup point.

Lanka Credit

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with National Development and Lanka Credit

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

The idea behind National Development Bank and Lanka Credit and 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.