Correlation Between Golden Tobacco and HDFC Asset

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

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

Diversification Opportunities for Golden Tobacco and HDFC Asset

0.28

Correlation Coefficient

Golden Tobacco  HDFC Asset

Modest diversification

The 3 months correlation between Golden and HDFC is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Golden Tobacco Limited and HDFC Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Asset Management and Golden Tobacco 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 Golden Tobacco Limited are associated (or correlated) with HDFC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Asset Management has no effect on the direction of Golden Tobacco i.e., Golden Tobacco and HDFC Asset go up and down completely randomly.

Pair Corralation between Golden Tobacco and HDFC Asset

Assuming the 90 days trading horizon Golden Tobacco Limited is expected to under-perform the HDFC Asset. In addition to that, Golden Tobacco is 1.29 times more volatile than HDFC Asset Management. It trades about -0.02 of its total potential returns per unit of risk. HDFC Asset Management is currently generating about 0.09 per unit of volatility. If you would invest  183,285  in HDFC Asset Management on October 26, 2024 and sell it today you would earn a total of  204,495  from holding HDFC Asset Management or generate 111.57% return on investment over 90 days.

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

Golden Tobacco Limited  vs.  HDFC Asset Management

Golden Tobacco

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Tobacco Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Golden Tobacco may actually be approaching a critical reversion point that can send shares even higher in February 2025.

HDFC Asset Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Golden Tobacco and HDFC Asset

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

The idea behind Golden Tobacco Limited and HDFC Asset Management 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.