Correlation Between HDFC Asset and Steel Authority

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

Diversification Opportunities for HDFC Asset and Steel Authority

0.86

Correlation Coefficient

HDFC Asset  Steel Authority

Very poor diversification

The 3 months correlation between HDFC and Steel is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority 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 Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of HDFC Asset i.e., HDFC Asset and Steel Authority go up and down completely randomly.

Pair Corralation between HDFC Asset and Steel Authority

Assuming the 90 days trading horizon HDFC Asset Management is expected to under-perform the Steel Authority. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Asset Management is 1.36 times less risky than Steel Authority. The stock trades about -0.09 of its potential returns per unit of risk. The Steel Authority of is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  11,713  in Steel Authority of on October 24, 2024 and sell it today you would lose (725.00) from holding Steel Authority of or give up 6.19% of portfolio value over 90 days.

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

HDFC Asset Management  vs.  Steel Authority of

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Steel Authority

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Authority of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Steel Authority is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HDFC Asset and Steel Authority

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

The idea behind HDFC Asset Management and Steel Authority of 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.