Correlation Between HDFC Asset and Golden Tobacco

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

Diversification Opportunities for HDFC Asset and Golden Tobacco

0.18

Correlation Coefficient

HDFC Asset  Golden Tobacco

Average diversification

The 3 months correlation between HDFC and Golden is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and Golden Tobacco Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Tobacco 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 Golden Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Tobacco has no effect on the direction of HDFC Asset i.e., HDFC Asset and Golden Tobacco go up and down completely randomly.

Pair Corralation between HDFC Asset and Golden Tobacco

Assuming the 90 days trading horizon HDFC Asset Management is expected to generate 0.62 times more return on investment than Golden Tobacco. However, HDFC Asset Management is 1.61 times less risky than Golden Tobacco. It trades about -0.01 of its potential returns per unit of risk. Golden Tobacco Limited is currently generating about -0.05 per unit of risk. If you would invest  421,660  in HDFC Asset Management on December 25, 2024 and sell it today you would lose (11,615) from holding HDFC Asset Management or give up 2.75% of portfolio value over 90 days.

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

HDFC Asset Management  vs.  Golden Tobacco Limited

HDFC Asset Management

Risk-Adjusted Performance

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.

Golden Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Golden Tobacco Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with HDFC Asset and Golden Tobacco

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

The idea behind HDFC Asset Management and Golden Tobacco Limited 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.