Correlation Between Tal Lanka and HVA Foods

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

By analyzing existing cross correlation between Tal Lanka Hotels and HVA Foods PLC, you can compare the effects of market volatilities on Tal Lanka and HVA Foods 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 Tal Lanka with a short position of HVA Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tal Lanka and HVA Foods.

Diversification Opportunities for Tal Lanka and HVA Foods

0.63

Correlation Coefficient

Tal Lanka  HVA Foods

Poor diversification

The 3 months correlation between Tal and HVA is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Tal Lanka Hotels and HVA Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HVA Foods PLC and Tal 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 Tal Lanka Hotels are associated (or correlated) with HVA Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HVA Foods PLC has no effect on the direction of Tal Lanka i.e., Tal Lanka and HVA Foods go up and down completely randomly.

Pair Corralation between Tal Lanka and HVA Foods

Assuming the 90 days trading horizon Tal Lanka is expected to generate 1.45 times less return on investment than HVA Foods. But when comparing it to its historical volatility, Tal Lanka Hotels is 1.5 times less risky than HVA Foods. It trades about 0.11 of its potential returns per unit of risk. HVA Foods PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  310.00  in HVA Foods PLC on September 17, 2024 and sell it today you would earn a total of  80.00  from holding HVA Foods PLC or generate 25.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.67%
Values	Daily Returns

Tal Lanka Hotels  vs.  HVA Foods PLC

Tal Lanka Hotels

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tal Lanka Hotels are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tal Lanka sustained solid returns over the last few months and may actually be approaching a breakup point.

HVA Foods PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HVA Foods PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HVA Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tal Lanka and HVA Foods

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

The idea behind Tal Lanka Hotels and HVA Foods PLC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.