Correlation Between IDFC First and DCB Bank

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

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

Diversification Opportunities for IDFC First and DCB Bank

0.64

Correlation Coefficient

IDFC First  DCB Bank

Poor diversification

The 3 months correlation between IDFC and DCB is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding IDFC First Bank 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 IDFC First 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 IDFC First Bank 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 IDFC First i.e., IDFC First and DCB Bank go up and down completely randomly.

Pair Corralation between IDFC First and DCB Bank

Assuming the 90 days trading horizon IDFC First is expected to generate 1.52 times less return on investment than DCB Bank. But when comparing it to its historical volatility, IDFC First Bank is 1.18 times less risky than DCB Bank. It trades about 0.1 of its potential returns per unit of risk. DCB Bank Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  12,701  in DCB Bank Limited on April 20, 2025 and sell it today you would earn a total of  2,002  from holding DCB Bank Limited or generate 15.76% return on investment over 90 days.

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

IDFC First Bank  vs.  DCB Bank Limited

IDFC First Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IDFC First Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, IDFC First may actually be approaching a critical reversion point that can send shares even higher in August 2025.

DCB Bank Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DCB Bank Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, DCB Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDFC First and DCB Bank

The main advantage of trading using opposite IDFC First and DCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDFC First 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 IDFC First Bank 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.