Correlation Between DFCC Bank and Sri Lanka

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

Diversification Opportunities for DFCC Bank and Sri Lanka

-0.07

Correlation Coefficient

DFCC Bank  Sri Lanka

Good diversification

The 3 months correlation between DFCC and Sri is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding DFCC Bank PLC and Sri Lanka Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sri Lanka Telecom 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 Sri Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sri Lanka Telecom has no effect on the direction of DFCC Bank i.e., DFCC Bank and Sri Lanka go up and down completely randomly.

Pair Corralation between DFCC Bank and Sri Lanka

Assuming the 90 days trading horizon DFCC Bank PLC is expected to generate 1.82 times more return on investment than Sri Lanka. However, DFCC Bank is 1.82 times more volatile than Sri Lanka Telecom. It trades about 0.11 of its potential returns per unit of risk. Sri Lanka Telecom is currently generating about -0.18 per unit of risk. If you would invest  9,360  in DFCC Bank PLC on December 25, 2024 and sell it today you would earn a total of  1,540  from holding DFCC Bank PLC or generate 16.45% return on investment over 90 days.

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

DFCC Bank PLC  vs.  Sri Lanka Telecom

DFCC Bank PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DFCC Bank PLC are ranked lower than 8 (%) 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.

Sri Lanka Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sri Lanka Telecom 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 Sri Lanka

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

The idea behind DFCC Bank PLC and Sri Lanka Telecom 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.