Correlation Between HDFC Bank and Bank Negara

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

Diversification Opportunities for HDFC Bank and Bank Negara

-0.37

Correlation Coefficient

HDFC Bank  Bank Negara

Very good diversification

The 3 months correlation between HDFC and Bank is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Bank Negara Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Negara Indonesia 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 Bank Negara. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Negara Indonesia has no effect on the direction of HDFC Bank i.e., HDFC Bank and Bank Negara go up and down completely randomly.

Pair Corralation between HDFC Bank and Bank Negara

Considering the 90-day investment horizon HDFC Bank Limited is expected to generate 0.25 times more return on investment than Bank Negara. However, HDFC Bank Limited is 3.96 times less risky than Bank Negara. It trades about 0.35 of its potential returns per unit of risk. Bank Negara Indonesia is currently generating about -0.07 per unit of risk. If you would invest  6,190  in HDFC Bank Limited on September 16, 2024 and sell it today you would earn a total of  510.00  from holding HDFC Bank Limited or generate 8.24% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Bank Negara Indonesia

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 inconsistent fundamental indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank Negara Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Negara Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of 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 Bank Negara

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

The idea behind HDFC Bank Limited and Bank Negara Indonesia 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.