Correlation Between E M and Kelani Cables

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Can any of the company-specific risk be diversified away by investing in both E M and Kelani Cables 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 E M and Kelani Cables into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between E M L and Kelani Cables PLC, you can compare the effects of market volatilities on E M and Kelani Cables 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 E M with a short position of Kelani Cables. Check out your portfolio center. Please also check ongoing floating volatility patterns of E M and Kelani Cables.

Diversification Opportunities for E M and Kelani Cables

0.51
  Correlation Coefficient
 E M

Very weak diversification

The 3 months correlation between EMLN0000 and Kelani is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding E M L and Kelani Cables PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kelani Cables PLC and E M 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 E M L are associated (or correlated) with Kelani Cables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kelani Cables PLC has no effect on the direction of E M i.e., E M and Kelani Cables go up and down completely randomly.

Pair Corralation between E M and Kelani Cables

Assuming the 90 days trading horizon E M is expected to generate 8.94 times less return on investment than Kelani Cables. But when comparing it to its historical volatility, E M L is 1.07 times less risky than Kelani Cables. It trades about 0.01 of its potential returns per unit of risk. Kelani Cables PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  51,650  in Kelani Cables PLC on November 28, 2024 and sell it today you would earn a total of  4,175  from holding Kelani Cables PLC or generate 8.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.24%
ValuesDaily Returns

E M L  vs.  Kelani Cables PLC

 Performance 
       Timeline  
E M L 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.
Kelani Cables PLC 

Risk-Adjusted Performance

Strong

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Kelani Cables PLC are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kelani Cables sustained solid returns over the last few months and may actually be approaching a breakup point.

E M and Kelani Cables Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with E M and Kelani Cables

The main advantage of trading using opposite E M and Kelani Cables positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E M position performs unexpectedly, Kelani Cables 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 Kelani Cables will offset losses from the drop in Kelani Cables' long position.
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The idea behind E M L and Kelani Cables 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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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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