Correlation Between DCB Bank and Zuari Agro

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

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

Diversification Opportunities for DCB Bank and Zuari Agro

0.74

Correlation Coefficient

DCB Bank  Zuari Agro

Poor diversification

The 3 months correlation between DCB and Zuari is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding DCB Bank Limited and Zuari Agro Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zuari Agro Chemicals and DCB Bank 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 DCB Bank Limited are associated (or correlated) with Zuari Agro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zuari Agro Chemicals has no effect on the direction of DCB Bank i.e., DCB Bank and Zuari Agro go up and down completely randomly.

Pair Corralation between DCB Bank and Zuari Agro

Assuming the 90 days trading horizon DCB Bank is expected to generate 10.58 times less return on investment than Zuari Agro. But when comparing it to its historical volatility, DCB Bank Limited is 1.53 times less risky than Zuari Agro. It trades about 0.01 of its potential returns per unit of risk. Zuari Agro Chemicals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  19,655  in Zuari Agro Chemicals on September 23, 2024 and sell it today you would earn a total of  2,501  from holding Zuari Agro Chemicals or generate 12.72% return on investment over 90 days.

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

DCB Bank Limited  vs.  Zuari Agro Chemicals

DCB Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DCB Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Zuari Agro Chemicals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zuari Agro Chemicals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Zuari Agro displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DCB Bank and Zuari Agro

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

The idea behind DCB Bank Limited and Zuari Agro Chemicals 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.