Correlation Between Japan Post and HDFC Bank

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

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

Diversification Opportunities for Japan Post and HDFC Bank

0.64

Correlation Coefficient

Japan Post  HDFC Bank

Poor diversification

The 3 months correlation between Japan and HDFC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Japan Post Bank and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited and Japan Post 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 Japan Post Bank are associated (or correlated) with HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank Limited has no effect on the direction of Japan Post i.e., Japan Post and HDFC Bank go up and down completely randomly.

Pair Corralation between Japan Post and HDFC Bank

Assuming the 90 days horizon Japan Post Bank is expected to generate 1.19 times more return on investment than HDFC Bank. However, Japan Post is 1.19 times more volatile than HDFC Bank Limited. It trades about 0.02 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.01 per unit of risk. If you would invest  805.00  in Japan Post Bank on September 23, 2024 and sell it today you would earn a total of  60.00  from holding Japan Post Bank or generate 7.45% return on investment over 90 days.

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

Japan Post Bank  vs.  HDFC Bank Limited

Japan Post Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Post Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Japan Post may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HDFC Bank Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Japan Post and HDFC Bank

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

The idea behind Japan Post Bank and HDFC 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.