Correlation Between V2 Retail and DCB Bank

Can any of the company-specific risk be diversified away by investing in both V2 Retail 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 V2 Retail and DCB Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between V2 Retail Limited and DCB Bank Limited, you can compare the effects of market volatilities on V2 Retail 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 V2 Retail with a short position of DCB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of V2 Retail and DCB Bank.

Diversification Opportunities for V2 Retail and DCB Bank

0.29

Correlation Coefficient

V2 Retail  DCB Bank

Modest diversification

The 3 months correlation between V2RETAIL and DCB is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding V2 Retail Limited 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 V2 Retail 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 V2 Retail 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 V2 Retail i.e., V2 Retail and DCB Bank go up and down completely randomly.

Pair Corralation between V2 Retail and DCB Bank

Assuming the 90 days trading horizon V2 Retail Limited is expected to generate 1.8 times more return on investment than DCB Bank. However, V2 Retail is 1.8 times more volatile than DCB Bank Limited. It trades about 0.2 of its potential returns per unit of risk. DCB Bank Limited is currently generating about 0.06 per unit of risk. If you would invest  113,425  in V2 Retail Limited on September 19, 2024 and sell it today you would earn a total of  47,615  from holding V2 Retail Limited or generate 41.98% return on investment over 90 days.

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

V2 Retail Limited  vs.  DCB Bank Limited

V2 Retail Limited

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in V2 Retail Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, V2 Retail demonstrated solid returns over the last few months and may actually be approaching a breakup point.

DCB Bank Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DCB Bank Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, DCB Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with V2 Retail and DCB Bank

The main advantage of trading using opposite V2 Retail and DCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if V2 Retail 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 V2 Retail 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.