Correlation Between HDFC Asset and Tata Motors

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

Diversification Opportunities for HDFC Asset and Tata Motors

0.68

Correlation Coefficient

HDFC Asset  Tata Motors

Poor diversification

The 3 months correlation between HDFC and Tata is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and Tata Motors Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Motors Limited 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 Tata Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Motors Limited has no effect on the direction of HDFC Asset i.e., HDFC Asset and Tata Motors go up and down completely randomly.

Pair Corralation between HDFC Asset and Tata Motors

Assuming the 90 days trading horizon HDFC Asset Management is expected to generate 0.9 times more return on investment than Tata Motors. However, HDFC Asset Management is 1.11 times less risky than Tata Motors. It trades about -0.01 of its potential returns per unit of risk. Tata Motors Limited is currently generating about -0.02 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	Significant
Accuracy	98.36%
Values	Daily Returns

HDFC Asset Management  vs.  Tata Motors 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.

Tata Motors Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with HDFC Asset and Tata Motors

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

The idea behind HDFC Asset Management and Tata Motors 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 Stocks Directory module to find actively traded stocks across global markets.