Correlation Between HDFC Bank and 3M India

Can any of the company-specific risk be diversified away by investing in both HDFC Bank and 3M India 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 Bank and 3M India into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HDFC Bank Limited and 3M India Limited, you can compare the effects of market volatilities on HDFC Bank and 3M India 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 Bank with a short position of 3M India. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and 3M India.

Diversification Opportunities for HDFC Bank and 3M India

-0.49

Correlation Coefficient

HDFC Bank  3M India

Very good diversification

The 3 months correlation between HDFC and 3MINDIA is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and 3M India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M India Limited and HDFC Bank 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 Bank Limited are associated (or correlated) with 3M India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M India Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and 3M India go up and down completely randomly.

Pair Corralation between HDFC Bank and 3M India

Assuming the 90 days trading horizon HDFC Bank is expected to generate 6.9 times less return on investment than 3M India. But when comparing it to its historical volatility, HDFC Bank Limited is 1.48 times less risky than 3M India. It trades about 0.01 of its potential returns per unit of risk. 3M India Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,228,275  in 3M India Limited on October 12, 2024 and sell it today you would earn a total of  741,120  from holding 3M India Limited or generate 33.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

HDFC Bank Limited  vs.  3M India Limited

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

3M India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 3M India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with HDFC Bank and 3M India

The main advantage of trading using opposite HDFC Bank and 3M India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, 3M India 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 3M India will offset losses from the drop in 3M India's long position.

The idea behind HDFC Bank Limited and 3M India 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.