Correlation Between HDFC Bank and STMicroelectronics

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

Diversification Opportunities for HDFC Bank and STMicroelectronics

0.47

Correlation Coefficient

HDFC Bank  STMicroelectronics

Very weak diversification

The 3 months correlation between HDFC and STMicroelectronics is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of HDFC Bank i.e., HDFC Bank and STMicroelectronics go up and down completely randomly.

Pair Corralation between HDFC Bank and STMicroelectronics

Assuming the 90 days trading horizon HDFC Bank is expected to generate 4.05 times less return on investment than STMicroelectronics. But when comparing it to its historical volatility, HDFC Bank Limited is 2.06 times less risky than STMicroelectronics. It trades about 0.13 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  13,000  in STMicroelectronics NV on December 4, 2024 and sell it today you would earn a total of  2,045  from holding STMicroelectronics NV or generate 15.73% return on investment over 90 days.

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

HDFC Bank Limited  vs.  STMicroelectronics NV

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 latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

STMicroelectronics

Risk-Adjusted Performance

Very Weak

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

Pair Trading with HDFC Bank and STMicroelectronics

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

The idea behind HDFC Bank Limited and STMicroelectronics NV 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.