Correlation Between HDFC Asset and General Insurance

Can any of the company-specific risk be diversified away by investing in both HDFC Asset and General Insurance 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 Asset and General Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HDFC Asset Management and General Insurance, you can compare the effects of market volatilities on HDFC Asset and General Insurance 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 Asset with a short position of General Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Asset and General Insurance.

Diversification Opportunities for HDFC Asset and General Insurance

0.19

Correlation Coefficient

HDFC Asset  General Insurance

Average diversification

The 3 months correlation between HDFC and General is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Insurance and HDFC Asset 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 Asset Management are associated (or correlated) with General Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Insurance has no effect on the direction of HDFC Asset i.e., HDFC Asset and General Insurance go up and down completely randomly.

Pair Corralation between HDFC Asset and General Insurance

Assuming the 90 days trading horizon HDFC Asset is expected to generate 1.46 times less return on investment than General Insurance. But when comparing it to its historical volatility, HDFC Asset Management is 1.61 times less risky than General Insurance. It trades about 0.09 of its potential returns per unit of risk. General Insurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  16,879  in General Insurance on September 20, 2024 and sell it today you would earn a total of  28,091  from holding General Insurance or generate 166.43% return on investment over 90 days.

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

HDFC Asset Management  vs.  General Insurance

HDFC Asset Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

General Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Asset and General Insurance

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

The idea behind HDFC Asset Management and General Insurance 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.