Correlation Between Sri Lanka and Amana Bank

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

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

Diversification Opportunities for Sri Lanka and Amana Bank

0.46

Correlation Coefficient

Sri Lanka  Amana Bank

Very weak diversification

The 3 months correlation between Sri and Amana is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Sri Lanka Telecom and Amana Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amana Bank and Sri Lanka 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 Sri Lanka Telecom are associated (or correlated) with Amana Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amana Bank has no effect on the direction of Sri Lanka i.e., Sri Lanka and Amana Bank go up and down completely randomly.

Pair Corralation between Sri Lanka and Amana Bank

Assuming the 90 days trading horizon Sri Lanka is expected to generate 1.22 times less return on investment than Amana Bank. In addition to that, Sri Lanka is 1.94 times more volatile than Amana Bank. It trades about 0.06 of its total potential returns per unit of risk. Amana Bank is currently generating about 0.14 per unit of volatility. If you would invest  2,220  in Amana Bank on September 26, 2024 and sell it today you would earn a total of  220.00  from holding Amana Bank or generate 9.91% return on investment over 90 days.

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

Sri Lanka Telecom  vs.  Amana Bank

Sri Lanka Telecom

Risk-Adjusted Performance

4 of 100

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.

Amana Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amana Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amana Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sri Lanka and Amana Bank

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

The idea behind Sri Lanka Telecom and Amana Bank 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.