Correlation Between Ceylon Guardian and DFCC Bank

Can any of the company-specific risk be diversified away by investing in both Ceylon Guardian and DFCC Bank 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 Ceylon Guardian and DFCC Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ceylon Guardian Investment and DFCC Bank PLC, you can compare the effects of market volatilities on Ceylon Guardian and DFCC Bank 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 Ceylon Guardian with a short position of DFCC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ceylon Guardian and DFCC Bank.

Diversification Opportunities for Ceylon Guardian and DFCC Bank

0.81

Correlation Coefficient

Ceylon Guardian  DFCC Bank

Very poor diversification

The 3 months correlation between Ceylon and DFCC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Guardian Investment and DFCC Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DFCC Bank PLC and Ceylon Guardian 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 Ceylon Guardian Investment are associated (or correlated) with DFCC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DFCC Bank PLC has no effect on the direction of Ceylon Guardian i.e., Ceylon Guardian and DFCC Bank go up and down completely randomly.

Pair Corralation between Ceylon Guardian and DFCC Bank

Assuming the 90 days trading horizon Ceylon Guardian Investment is expected to generate 1.2 times more return on investment than DFCC Bank. However, Ceylon Guardian is 1.2 times more volatile than DFCC Bank PLC. It trades about 0.01 of its potential returns per unit of risk. DFCC Bank PLC is currently generating about 0.0 per unit of risk. If you would invest  15,975  in Ceylon Guardian Investment on December 28, 2024 and sell it today you would lose (175.00) from holding Ceylon Guardian Investment or give up 1.1% of portfolio value over 90 days.

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

Ceylon Guardian Investment  vs.  DFCC Bank PLC

Ceylon Guardian Inve

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Ceylon Guardian and DFCC Bank

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

The idea behind Ceylon Guardian Investment and DFCC Bank PLC 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.