Correlation Between Dodla Dairy and SAL Steel

Can any of the company-specific risk be diversified away by investing in both Dodla Dairy and SAL Steel 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 Dodla Dairy and SAL Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dodla Dairy Limited and SAL Steel Limited, you can compare the effects of market volatilities on Dodla Dairy and SAL Steel 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 Dodla Dairy with a short position of SAL Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dodla Dairy and SAL Steel.

Diversification Opportunities for Dodla Dairy and SAL Steel

-0.08

Correlation Coefficient

Dodla Dairy  SAL Steel

Good diversification

The 3 months correlation between Dodla and SAL is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dodla Dairy Limited and SAL Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAL Steel Limited and Dodla Dairy 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 Dodla Dairy Limited are associated (or correlated) with SAL Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAL Steel Limited has no effect on the direction of Dodla Dairy i.e., Dodla Dairy and SAL Steel go up and down completely randomly.

Pair Corralation between Dodla Dairy and SAL Steel

Assuming the 90 days trading horizon Dodla Dairy Limited is expected to generate 0.71 times more return on investment than SAL Steel. However, Dodla Dairy Limited is 1.4 times less risky than SAL Steel. It trades about -0.07 of its potential returns per unit of risk. SAL Steel Limited is currently generating about -0.12 per unit of risk. If you would invest  131,526  in Dodla Dairy Limited on October 12, 2024 and sell it today you would lose (11,586) from holding Dodla Dairy Limited or give up 8.81% of portfolio value over 90 days.

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

Dodla Dairy Limited  vs.  SAL Steel Limited

Dodla Dairy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dodla Dairy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

SAL Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SAL Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Dodla Dairy and SAL Steel

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

The idea behind Dodla Dairy Limited and SAL Steel Limited 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.