Correlation Between Agro Tech and DCB Bank

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

By analyzing existing cross correlation between Agro Tech Foods and DCB Bank Limited, you can compare the effects of market volatilities on Agro Tech and DCB 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 Agro Tech with a short position of DCB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Tech and DCB Bank.

Diversification Opportunities for Agro Tech and DCB Bank

0.3

Correlation Coefficient

Agro Tech  DCB Bank

Weak diversification

The 3 months correlation between Agro and DCB is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and DCB Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCB Bank Limited and Agro Tech 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 Agro Tech Foods are associated (or correlated) with DCB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCB Bank Limited has no effect on the direction of Agro Tech i.e., Agro Tech and DCB Bank go up and down completely randomly.

Pair Corralation between Agro Tech and DCB Bank

Assuming the 90 days trading horizon Agro Tech is expected to generate 1.28 times less return on investment than DCB Bank. In addition to that, Agro Tech is 1.68 times more volatile than DCB Bank Limited. It trades about 0.02 of its total potential returns per unit of risk. DCB Bank Limited is currently generating about 0.05 per unit of volatility. If you would invest  11,202  in DCB Bank Limited on October 22, 2024 and sell it today you would earn a total of  460.00  from holding DCB Bank Limited or generate 4.11% return on investment over 90 days.

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

Agro Tech Foods  vs.  DCB Bank Limited

Agro Tech Foods

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Agro Tech Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Agro Tech is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

DCB Bank Limited

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DCB Bank Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, DCB Bank is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Agro Tech and DCB Bank

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

The idea behind Agro Tech Foods and DCB Bank Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.