Correlation Between HDFC Bank and First Farmers

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

Diversification Opportunities for HDFC Bank and First Farmers

0.03

Correlation Coefficient

HDFC Bank  First Farmers

Significant diversification

The 3 months correlation between HDFC and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and First Farmers Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Farmers Financial 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 First Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Farmers Financial has no effect on the direction of HDFC Bank i.e., HDFC Bank and First Farmers go up and down completely randomly.

Pair Corralation between HDFC Bank and First Farmers

Considering the 90-day investment horizon HDFC Bank is expected to generate 1.27 times less return on investment than First Farmers. In addition to that, HDFC Bank is 1.72 times more volatile than First Farmers Financial. It trades about 0.03 of its total potential returns per unit of risk. First Farmers Financial is currently generating about 0.06 per unit of volatility. If you would invest  6,521  in First Farmers Financial on December 26, 2024 and sell it today you would earn a total of  169.00  from holding First Farmers Financial or generate 2.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

HDFC Bank Limited  vs.  First Farmers Financial

HDFC Bank Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, HDFC Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Farmers Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Farmers Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, First Farmers is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with HDFC Bank and First Farmers

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

The idea behind HDFC Bank Limited and First Farmers Financial 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.