Correlation Between HDFC Asset and STEEL EXCHANGE

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

Diversification Opportunities for HDFC Asset and STEEL EXCHANGE

0.6

Correlation Coefficient

HDFC Asset  STEEL EXCHANGE

Poor diversification

The 3 months correlation between HDFC and STEEL is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and STEEL EXCHANGE INDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL EXCHANGE INDIA 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 EXCHANGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEEL EXCHANGE INDIA has no effect on the direction of HDFC Asset i.e., HDFC Asset and STEEL EXCHANGE go up and down completely randomly.

Pair Corralation between HDFC Asset and STEEL EXCHANGE

Assuming the 90 days trading horizon HDFC Asset Management is expected to generate 0.93 times more return on investment than STEEL EXCHANGE. However, HDFC Asset Management is 1.07 times less risky than STEEL EXCHANGE. It trades about 0.04 of its potential returns per unit of risk. STEEL EXCHANGE INDIA is currently generating about -0.06 per unit of risk. If you would invest  358,245  in HDFC Asset Management on October 12, 2024 and sell it today you would earn a total of  36,795  from holding HDFC Asset Management or generate 10.27% return on investment over 90 days.

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

HDFC Asset Management  vs.  STEEL EXCHANGE INDIA

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 inconsistent 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 EXCHANGE INDIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STEEL EXCHANGE INDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with HDFC Asset and STEEL EXCHANGE

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

The idea behind HDFC Asset Management and STEEL EXCHANGE INDIA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.