Correlation Between DLF and DCM Shriram

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Can any of the company-specific risk be diversified away by investing in both DLF and DCM Shriram 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 DLF and DCM Shriram into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DLF Limited and DCM Shriram Limited, you can compare the effects of market volatilities on DLF and DCM Shriram 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 DLF with a short position of DCM Shriram. Check out your portfolio center. Please also check ongoing floating volatility patterns of DLF and DCM Shriram.

Diversification Opportunities for DLF and DCM Shriram

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between DLF and DCM is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding DLF Limited and DCM Shriram Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCM Shriram Limited and DLF 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 DLF Limited are associated (or correlated) with DCM Shriram. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCM Shriram Limited has no effect on the direction of DLF i.e., DLF and DCM Shriram go up and down completely randomly.

Pair Corralation between DLF and DCM Shriram

Assuming the 90 days trading horizon DLF is expected to generate 1.32 times less return on investment than DCM Shriram. But when comparing it to its historical volatility, DLF Limited is 1.27 times less risky than DCM Shriram. It trades about 0.17 of its potential returns per unit of risk. DCM Shriram Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  106,880  in DCM Shriram Limited on April 23, 2025 and sell it today you would earn a total of  32,960  from holding DCM Shriram Limited or generate 30.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DLF Limited  vs.  DCM Shriram Limited

 Performance 
       Timeline  
DLF Limited 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in DLF Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, DLF exhibited solid returns over the last few months and may actually be approaching a breakup point.
DCM Shriram Limited 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in DCM Shriram Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, DCM Shriram demonstrated solid returns over the last few months and may actually be approaching a breakup point.

DLF and DCM Shriram Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DLF and DCM Shriram

The main advantage of trading using opposite DLF and DCM Shriram positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DLF position performs unexpectedly, DCM Shriram 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 DCM Shriram will offset losses from the drop in DCM Shriram's long position.
The idea behind DLF Limited and DCM Shriram 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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