Correlation Between HDFC Bank and Microsoft

Can any of the company-specific risk be diversified away by investing in both HDFC Bank and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on HDFC Bank and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Microsoft.

Diversification Opportunities for HDFC Bank and Microsoft

0.9

Correlation Coefficient

HDFC Bank  Microsoft

Almost no diversification

The 3 months correlation between HDFC and Microsoft is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of HDFC Bank i.e., HDFC Bank and Microsoft go up and down completely randomly.

Pair Corralation between HDFC Bank and Microsoft

Assuming the 90 days trading horizon HDFC Bank is expected to generate 120.68 times less return on investment than Microsoft. But when comparing it to its historical volatility, HDFC Bank Limited is 1.24 times less risky than Microsoft. It trades about 0.0 of its potential returns per unit of risk. Microsoft is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,470  in Microsoft on September 29, 2024 and sell it today you would earn a total of  625.00  from holding Microsoft or generate 5.97% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Microsoft

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

The idea behind HDFC Bank Limited and Microsoft 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.