Correlation Between DFCC Bank and ACL Plastics

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

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

Diversification Opportunities for DFCC Bank and ACL Plastics

0.82

Correlation Coefficient

DFCC Bank  ACL Plastics

Very poor diversification

The 3 months correlation between DFCC and ACL is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding DFCC Bank PLC and ACL Plastics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACL Plastics PLC and DFCC 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 DFCC Bank PLC are associated (or correlated) with ACL Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACL Plastics PLC has no effect on the direction of DFCC Bank i.e., DFCC Bank and ACL Plastics go up and down completely randomly.

Pair Corralation between DFCC Bank and ACL Plastics

Assuming the 90 days trading horizon DFCC Bank PLC is expected to generate 1.28 times more return on investment than ACL Plastics. However, DFCC Bank is 1.28 times more volatile than ACL Plastics PLC. It trades about 0.46 of its potential returns per unit of risk. ACL Plastics PLC is currently generating about 0.17 per unit of risk. If you would invest  8,710  in DFCC Bank PLC on October 11, 2024 and sell it today you would earn a total of  2,490  from holding DFCC Bank PLC or generate 28.59% return on investment over 90 days.

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

DFCC Bank PLC  vs.  ACL Plastics PLC

DFCC Bank PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DFCC Bank PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DFCC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

ACL Plastics PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ACL Plastics PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ACL Plastics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DFCC Bank and ACL Plastics

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

The idea behind DFCC Bank PLC and ACL Plastics 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.