Correlation Between DFCC Bank and E M

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

Diversification Opportunities for DFCC Bank and E M

0.59

Correlation Coefficient

DFCC Bank  E M

Very weak diversification

The 3 months correlation between DFCC and EMLN0000 is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding DFCC Bank PLC and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L 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 E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of DFCC Bank i.e., DFCC Bank and E M go up and down completely randomly.

Pair Corralation between DFCC Bank and E M

Assuming the 90 days trading horizon DFCC Bank is expected to generate 1.05 times less return on investment than E M. But when comparing it to its historical volatility, DFCC Bank PLC is 2.94 times less risky than E M. It trades about 0.26 of its potential returns per unit of risk. E M L is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  310.00  in E M L on September 22, 2024 and sell it today you would earn a total of  70.00  from holding E M L or generate 22.58% return on investment over 90 days.

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

DFCC Bank PLC  vs.  E M L

DFCC Bank PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DFCC Bank PLC are ranked lower than 20 (%) 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.

E M L

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 7 (%) 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.

Pair Trading with DFCC Bank and E M

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

The idea behind DFCC Bank PLC and E M L 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.