Correlation Between HDFC Bank and Citizens Financial

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

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

Diversification Opportunities for HDFC Bank and Citizens Financial

0.87

Correlation Coefficient

HDFC Bank  Citizens Financial

Very poor diversification

The 3 months correlation between HDFC and Citizens is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Citizens Financial Group, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial Group, and HDFC Bank 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 HDFC Bank Limited are associated (or correlated) with Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial Group, has no effect on the direction of HDFC Bank i.e., HDFC Bank and Citizens Financial go up and down completely randomly.

Pair Corralation between HDFC Bank and Citizens Financial

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.59 times more return on investment than Citizens Financial. However, HDFC Bank Limited is 1.69 times less risky than Citizens Financial. It trades about -0.12 of its potential returns per unit of risk. Citizens Financial Group, is currently generating about -0.11 per unit of risk. If you would invest  8,160  in HDFC Bank Limited on October 6, 2024 and sell it today you would lose (224.00) from holding HDFC Bank Limited or give up 2.75% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  Citizens Financial Group,

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Citizens Financial Group,

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group, are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Citizens Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Citizens Financial

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

The idea behind HDFC Bank Limited and Citizens Financial Group, 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.