Correlation Between HDFC Bank and Telefnica Brasil

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

Diversification Opportunities for HDFC Bank and Telefnica Brasil

-0.64

Correlation Coefficient

HDFC Bank  Telefnica Brasil

Excellent diversification

The 3 months correlation between HDFC and Telefnica is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Telefnica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica Brasil 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 Telefnica Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica Brasil has no effect on the direction of HDFC Bank i.e., HDFC Bank and Telefnica Brasil go up and down completely randomly.

Pair Corralation between HDFC Bank and Telefnica Brasil

Assuming the 90 days trading horizon HDFC Bank Limited is expected to under-perform the Telefnica Brasil. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Bank Limited is 1.28 times less risky than Telefnica Brasil. The stock trades about -0.06 of its potential returns per unit of risk. The Telefnica Brasil SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,700  in Telefnica Brasil SA on December 26, 2024 and sell it today you would earn a total of  207.00  from holding Telefnica Brasil SA or generate 4.4% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Telefnica Brasil SA

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

Telefnica Brasil

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica Brasil SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Telefnica Brasil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HDFC Bank and Telefnica Brasil

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

The idea behind HDFC Bank Limited and Telefnica Brasil SA 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.