Correlation Between HDFC Bank and AAA Technologies

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

Diversification Opportunities for HDFC Bank and AAA Technologies

-0.45

Correlation Coefficient

HDFC Bank  AAA Technologies

Very good diversification

The 3 months correlation between HDFC and AAA is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and AAA Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAA Technologies 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 AAA Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAA Technologies has no effect on the direction of HDFC Bank i.e., HDFC Bank and AAA Technologies go up and down completely randomly.

Pair Corralation between HDFC Bank and AAA Technologies

Assuming the 90 days trading horizon HDFC Bank is expected to generate 4.84 times less return on investment than AAA Technologies. But when comparing it to its historical volatility, HDFC Bank Limited is 2.83 times less risky than AAA Technologies. It trades about 0.03 of its potential returns per unit of risk. AAA Technologies Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,201  in AAA Technologies Limited on October 3, 2024 and sell it today you would earn a total of  4,161  from holding AAA Technologies Limited or generate 67.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

HDFC Bank Limited  vs.  AAA Technologies Limited

HDFC Bank Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

AAA Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAA Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's technical and fundamental 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 Bank and AAA Technologies

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

The idea behind HDFC Bank Limited and AAA Technologies 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.