Correlation Between HDFC Bank and Two Rivers

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

Diversification Opportunities for HDFC Bank and Two Rivers

-0.75

Correlation Coefficient

HDFC Bank  Two Rivers

Pay attention - limited upside

The 3 months correlation between HDFC and Two is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Two Rivers Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Rivers 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 Two Rivers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Rivers Financial has no effect on the direction of HDFC Bank i.e., HDFC Bank and Two Rivers go up and down completely randomly.

Pair Corralation between HDFC Bank and Two Rivers

Considering the 90-day investment horizon HDFC Bank Limited is expected to generate 5.02 times more return on investment than Two Rivers. However, HDFC Bank is 5.02 times more volatile than Two Rivers Financial. It trades about 0.07 of its potential returns per unit of risk. Two Rivers Financial is currently generating about -0.1 per unit of risk. If you would invest  5,987  in HDFC Bank Limited on December 3, 2024 and sell it today you would earn a total of  78.00  from holding HDFC Bank Limited or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

HDFC Bank Limited  vs.  Two Rivers Financial

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 latest inconsistent performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Two Rivers Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Two Rivers Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Two Rivers may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with HDFC Bank and Two Rivers

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

The idea behind HDFC Bank Limited and Two Rivers 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..