Correlation Between Paramount Communications and DCB Bank

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

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

Diversification Opportunities for Paramount Communications and DCB Bank

0.34

Correlation Coefficient

Paramount Communications  DCB Bank

Weak diversification

The 3 months correlation between Paramount and DCB is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Paramount Communications Limit and DCB Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCB Bank Limited and Paramount Communications 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 Paramount Communications Limited are associated (or correlated) with DCB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCB Bank Limited has no effect on the direction of Paramount Communications i.e., Paramount Communications and DCB Bank go up and down completely randomly.

Pair Corralation between Paramount Communications and DCB Bank

Assuming the 90 days trading horizon Paramount Communications Limited is expected to generate 1.42 times more return on investment than DCB Bank. However, Paramount Communications is 1.42 times more volatile than DCB Bank Limited. It trades about 0.19 of its potential returns per unit of risk. DCB Bank Limited is currently generating about 0.11 per unit of risk. If you would invest  6,961  in Paramount Communications Limited on September 22, 2024 and sell it today you would earn a total of  1,530  from holding Paramount Communications Limited or generate 21.98% return on investment over 90 days.

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

Paramount Communications Limit  vs.  DCB Bank Limited

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

DCB Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DCB Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, DCB Bank is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Paramount Communications and DCB Bank

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

The idea behind Paramount Communications Limited and DCB Bank 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.