Correlation Between HDFC Bank and Unity Software

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

Diversification Opportunities for HDFC Bank and Unity Software

0.18

Correlation Coefficient

HDFC Bank  Unity Software

Average diversification

The 3 months correlation between HDFC and Unity is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Unity Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unity Software 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 Unity Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unity Software has no effect on the direction of HDFC Bank i.e., HDFC Bank and Unity Software go up and down completely randomly.

Pair Corralation between HDFC Bank and Unity Software

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.28 times more return on investment than Unity Software. However, HDFC Bank Limited is 3.51 times less risky than Unity Software. It trades about -0.02 of its potential returns per unit of risk. Unity Software is currently generating about -0.03 per unit of risk. If you would invest  7,936  in HDFC Bank Limited on December 30, 2024 and sell it today you would lose (226.00) from holding HDFC Bank Limited or give up 2.85% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  Unity Software

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 current stock price disturbance, may contribute to short-term losses for the investors.

Unity Software

Risk-Adjusted Performance

Very Weak

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

Pair Trading with HDFC Bank and Unity Software

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

The idea behind HDFC Bank Limited and Unity Software 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.