Correlation Between Agro Phos and HDFC Bank

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

Diversification Opportunities for Agro Phos and HDFC Bank

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Agro and HDFC is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Agro Phos India 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 Agro Phos 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 Agro Phos India 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 Agro Phos i.e., Agro Phos and HDFC Bank go up and down completely randomly.

Pair Corralation between Agro Phos and HDFC Bank

Assuming the 90 days trading horizon Agro Phos India is expected to under-perform the HDFC Bank. In addition to that, Agro Phos is 1.62 times more volatile than HDFC Bank Limited. It trades about -0.35 of its total potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.45 per unit of volatility. If you would invest  180,100  in HDFC Bank Limited on October 24, 2024 and sell it today you would lose (15,860) from holding HDFC Bank Limited or give up 8.81% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Agro Phos India  vs.  HDFC Bank Limited

 Performance 
       Timeline  
Agro Phos India 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Agro Phos India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
HDFC Bank Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Agro Phos and HDFC Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Agro Phos and HDFC Bank

The main advantage of trading using opposite Agro Phos and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agro Phos 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 Agro Phos India 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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