Correlation Between Prime Lands and Colombo Investment

Can any of the company-specific risk be diversified away by investing in both Prime Lands and Colombo Investment 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 Prime Lands and Colombo Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prime Lands Residencies and Colombo Investment Trust, you can compare the effects of market volatilities on Prime Lands and Colombo Investment 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 Prime Lands with a short position of Colombo Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Lands and Colombo Investment.

Diversification Opportunities for Prime Lands and Colombo Investment

0.14

Correlation Coefficient

Prime Lands  Colombo Investment

Average diversification

The 3 months correlation between Prime and Colombo is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Prime Lands Residencies and Colombo Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colombo Investment Trust and Prime Lands 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 Prime Lands Residencies are associated (or correlated) with Colombo Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colombo Investment Trust has no effect on the direction of Prime Lands i.e., Prime Lands and Colombo Investment go up and down completely randomly.

Pair Corralation between Prime Lands and Colombo Investment

Assuming the 90 days trading horizon Prime Lands is expected to generate 1.23 times less return on investment than Colombo Investment. But when comparing it to its historical volatility, Prime Lands Residencies is 1.7 times less risky than Colombo Investment. It trades about 0.21 of its potential returns per unit of risk. Colombo Investment Trust is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  9,050  in Colombo Investment Trust on September 25, 2024 and sell it today you would earn a total of  2,125  from holding Colombo Investment Trust or generate 23.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	60.66%
Values	Daily Returns

Prime Lands Residencies  vs.  Colombo Investment Trust

Prime Lands Residencies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Lands Residencies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Prime Lands sustained solid returns over the last few months and may actually be approaching a breakup point.

Colombo Investment Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Colombo Investment Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Colombo Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prime Lands and Colombo Investment

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

The idea behind Prime Lands Residencies and Colombo Investment Trust 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.