Correlation Between Iridium Communications and HDFC Bank

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

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

Diversification Opportunities for Iridium Communications and HDFC Bank

0.34

Correlation Coefficient

Iridium Communications  HDFC Bank

Weak diversification

The 3 months correlation between Iridium and HDFC is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Iridium Communications 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 Iridium Communications 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 Iridium Communications 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 Iridium Communications i.e., Iridium Communications and HDFC Bank go up and down completely randomly.

Pair Corralation between Iridium Communications and HDFC Bank

Assuming the 90 days horizon Iridium Communications is expected to generate 1.77 times more return on investment than HDFC Bank. However, Iridium Communications is 1.77 times more volatile than HDFC Bank Limited. It trades about -0.03 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.19 per unit of risk. If you would invest  2,818  in Iridium Communications on October 5, 2024 and sell it today you would lose (27.00) from holding Iridium Communications or give up 0.96% of portfolio value over 90 days.

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

Iridium Communications  vs.  HDFC Bank Limited

Iridium Communications

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Iridium Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain technical and fundamental indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Iridium Communications and HDFC Bank

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

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.