Correlation Between Singhe Hospitals and Ceylon Tobacco

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

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

Diversification Opportunities for Singhe Hospitals and Ceylon Tobacco

0.13

Correlation Coefficient

Singhe Hospitals  Ceylon Tobacco

Average diversification

The 3 months correlation between Singhe and Ceylon is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Singhe Hospitals and Ceylon Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Tobacco and Singhe Hospitals 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 Singhe Hospitals 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 Singhe Hospitals i.e., Singhe Hospitals and Ceylon Tobacco go up and down completely randomly.

Pair Corralation between Singhe Hospitals and Ceylon Tobacco

Assuming the 90 days trading horizon Singhe Hospitals is expected to generate 5.92 times less return on investment than Ceylon Tobacco. In addition to that, Singhe Hospitals is 3.42 times more volatile than Ceylon Tobacco. It trades about 0.01 of its total potential returns per unit of risk. Ceylon Tobacco is currently generating about 0.27 per unit of volatility. If you would invest  116,025  in Ceylon Tobacco on September 15, 2024 and sell it today you would earn a total of  15,975  from holding Ceylon Tobacco or generate 13.77% return on investment over 90 days.

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

Singhe Hospitals  vs.  Ceylon Tobacco

Singhe Hospitals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Singhe Hospitals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Singhe Hospitals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ceylon Tobacco

Risk-Adjusted Performance

21 of 100

Solid

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

Pair Trading with Singhe Hospitals and Ceylon Tobacco

The main advantage of trading using opposite Singhe Hospitals and Ceylon Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Singhe Hospitals 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 Singhe Hospitals 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.