Correlation Between HDFC Bank and PT Bank

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

Diversification Opportunities for HDFC Bank and PT Bank

-0.69

Correlation Coefficient

HDFC Bank  PT Bank

Excellent diversification

The 3 months correlation between HDFC and PQ9 is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and PT Bank Mandiri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Mandiri 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Mandiri has no effect on the direction of HDFC Bank i.e., HDFC Bank and PT Bank go up and down completely randomly.

Pair Corralation between HDFC Bank and PT Bank

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.42 times more return on investment than PT Bank. However, HDFC Bank Limited is 2.36 times less risky than PT Bank. It trades about 0.13 of its potential returns per unit of risk. PT Bank Mandiri is currently generating about -0.06 per unit of risk. If you would invest  5,550  in HDFC Bank Limited on September 13, 2024 and sell it today you would earn a total of  800.00  from holding HDFC Bank Limited or generate 14.41% 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.  PT Bank Mandiri

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, HDFC Bank reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with HDFC Bank and PT Bank

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

The idea behind HDFC Bank Limited and PT Bank Mandiri 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.