Correlation Between State Bank and Dodla Dairy

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

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

Diversification Opportunities for State Bank and Dodla Dairy

0.85

Correlation Coefficient

State Bank  Dodla Dairy

Very poor diversification

The 3 months correlation between State and Dodla is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Dodla Dairy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodla Dairy Limited and State 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 State Bank of are associated (or correlated) with Dodla Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodla Dairy Limited has no effect on the direction of State Bank i.e., State Bank and Dodla Dairy go up and down completely randomly.

Pair Corralation between State Bank and Dodla Dairy

Assuming the 90 days trading horizon State Bank of is expected to generate 0.51 times more return on investment than Dodla Dairy. However, State Bank of is 1.96 times less risky than Dodla Dairy. It trades about -0.02 of its potential returns per unit of risk. Dodla Dairy Limited is currently generating about -0.01 per unit of risk. If you would invest  78,830  in State Bank of on December 30, 2024 and sell it today you would lose (1,680) from holding State Bank of or give up 2.13% of portfolio value over 90 days.

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

State Bank of  vs.  Dodla Dairy Limited

State Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Dodla Dairy Limited

Risk-Adjusted Performance

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 very healthy fundamental indicators, Dodla Dairy is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with State Bank and Dodla Dairy

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

The idea behind State Bank of and Dodla Dairy 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.