Correlation Between Ceylon Beverage and HDFC Bank

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

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

Diversification Opportunities for Ceylon Beverage and HDFC Bank

0.35

Correlation Coefficient

Ceylon Beverage  HDFC Bank

Weak diversification

The 3 months correlation between Ceylon and HDFC is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ceylon Beverage Holdings and HDFC Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank and Ceylon Beverage 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 Ceylon Beverage Holdings 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 has no effect on the direction of Ceylon Beverage i.e., Ceylon Beverage and HDFC Bank go up and down completely randomly.

Pair Corralation between Ceylon Beverage and HDFC Bank

Assuming the 90 days trading horizon Ceylon Beverage Holdings is expected to generate 3.4 times more return on investment than HDFC Bank. However, Ceylon Beverage is 3.4 times more volatile than HDFC Bank of. It trades about 0.26 of its potential returns per unit of risk. HDFC Bank of is currently generating about 0.08 per unit of risk. If you would invest  190,000  in Ceylon Beverage Holdings on September 14, 2024 and sell it today you would earn a total of  94,825  from holding Ceylon Beverage Holdings or generate 49.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	55.36%
Values	Daily Returns

Ceylon Beverage Holdings  vs.  HDFC Bank of

Ceylon Beverage Holdings

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Beverage Holdings are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

HDFC Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ceylon Beverage and HDFC Bank

The main advantage of trading using opposite Ceylon Beverage and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ceylon Beverage 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 Ceylon Beverage Holdings and HDFC Bank of 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.