Correlation Between Citizens Financial and HDFC Bank

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

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

Diversification Opportunities for Citizens Financial and HDFC Bank

0.02

Correlation Coefficient

Citizens Financial  HDFC Bank

Significant diversification

The 3 months correlation between Citizens and HDFC is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group, 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 Citizens Financial 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 Citizens Financial Group, 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 Citizens Financial i.e., Citizens Financial and HDFC Bank go up and down completely randomly.

Pair Corralation between Citizens Financial and HDFC Bank

Assuming the 90 days trading horizon Citizens Financial Group, is expected to under-perform the HDFC Bank. But the stock apears to be less risky and, when comparing its historical volatility, Citizens Financial Group, is 1.05 times less risky than HDFC Bank. The stock trades about -0.1 of its potential returns per unit of risk. The HDFC Bank Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,936  in HDFC Bank Limited on December 25, 2024 and sell it today you would lose (364.00) from holding HDFC Bank Limited or give up 4.59% of portfolio value over 90 days.

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

Citizens Financial Group,  vs.  HDFC Bank Limited

Citizens Financial Group,

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citizens Financial Group, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

HDFC Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, HDFC Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citizens Financial and HDFC Bank

The main advantage of trading using opposite Citizens Financial and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens Financial 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 Citizens Financial Group, 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.