Correlation Between HDFC Bank and National Bank

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

Diversification Opportunities for HDFC Bank and National Bank

-0.43

Correlation Coefficient

HDFC Bank  National Bank

Very good diversification

The 3 months correlation between HDFC and National is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of HDFC Bank i.e., HDFC Bank and National Bank go up and down completely randomly.

Pair Corralation between HDFC Bank and National Bank

Considering the 90-day investment horizon HDFC Bank is expected to generate 45.4 times less return on investment than National Bank. But when comparing it to its historical volatility, HDFC Bank Limited is 2.54 times less risky than National Bank. It trades about 0.0 of its potential returns per unit of risk. National Bank of is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  302.00  in National Bank of on October 6, 2024 and sell it today you would earn a total of  508.00  from holding National Bank of or generate 168.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

HDFC Bank Limited  vs.  National Bank of

HDFC Bank Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 5 (%) 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.

National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, National Bank 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 National Bank

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

The idea behind HDFC Bank Limited and National Bank of 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.

Check out your portfolio center.

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 Valuation module to check real value of public entities based on technical and fundamental data.