Correlation Between DFCC Bank and Ceylon Beverage

Can any of the company-specific risk be diversified away by investing in both DFCC Bank and Ceylon Beverage 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 Ceylon Beverage 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 Ceylon Beverage Holdings, you can compare the effects of market volatilities on DFCC Bank and Ceylon Beverage 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 Ceylon Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFCC Bank and Ceylon Beverage.

Diversification Opportunities for DFCC Bank and Ceylon Beverage

0.56

Correlation Coefficient

DFCC Bank  Ceylon Beverage

Very weak diversification

The 3 months correlation between DFCC and Ceylon is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding DFCC Bank PLC and Ceylon Beverage Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Beverage Holdings 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 Ceylon Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Beverage Holdings has no effect on the direction of DFCC Bank i.e., DFCC Bank and Ceylon Beverage go up and down completely randomly.

Pair Corralation between DFCC Bank and Ceylon Beverage

Assuming the 90 days trading horizon DFCC Bank PLC is expected to generate 1.9 times more return on investment than Ceylon Beverage. However, DFCC Bank is 1.9 times more volatile than Ceylon Beverage Holdings. It trades about 0.0 of its potential returns per unit of risk. Ceylon Beverage Holdings is currently generating about -0.28 per unit of risk. If you would invest  10,775  in DFCC Bank PLC on December 30, 2024 and sell it today you would lose (200.00) from holding DFCC Bank PLC or give up 1.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	89.66%
Values	Daily Returns

DFCC Bank PLC  vs.  Ceylon Beverage Holdings

DFCC Bank PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days DFCC Bank PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DFCC Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ceylon Beverage Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ceylon Beverage Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with DFCC Bank and Ceylon Beverage

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

The idea behind DFCC Bank PLC and Ceylon Beverage Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.