Correlation Between DFCC Bank and Nations Trust

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

Diversification Opportunities for DFCC Bank and Nations Trust

0.63

Correlation Coefficient

DFCC Bank  Nations Trust

Poor diversification

The 3 months correlation between DFCC and Nations is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding DFCC Bank PLC and Nations Trust Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nations Trust Bank 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 Nations Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nations Trust Bank has no effect on the direction of DFCC Bank i.e., DFCC Bank and Nations Trust go up and down completely randomly.

Pair Corralation between DFCC Bank and Nations Trust

Assuming the 90 days trading horizon DFCC Bank PLC is expected to under-perform the Nations Trust. In addition to that, DFCC Bank is 1.6 times more volatile than Nations Trust Bank. It trades about 0.0 of its total potential returns per unit of risk. Nations Trust Bank is currently generating about 0.03 per unit of volatility. If you would invest  18,525  in Nations Trust Bank on December 28, 2024 and sell it today you would earn a total of  475.00  from holding Nations Trust Bank or generate 2.56% return on investment over 90 days.

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

DFCC Bank PLC  vs.  Nations Trust Bank

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.

Nations Trust Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nations Trust Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nations Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with DFCC Bank and Nations Trust

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

The idea behind DFCC Bank PLC and Nations Trust Bank 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.