Correlation Between HDFC Bank and Aarti Drugs

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

Diversification Opportunities for HDFC Bank and Aarti Drugs

-0.68

Correlation Coefficient

HDFC Bank  Aarti Drugs

Excellent diversification

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

Pair Corralation between HDFC Bank and Aarti Drugs

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 1.25 times more return on investment than Aarti Drugs. However, HDFC Bank is 1.25 times more volatile than Aarti Drugs Limited. It trades about 0.15 of its potential returns per unit of risk. Aarti Drugs Limited is currently generating about -0.23 per unit of risk. If you would invest  166,595  in HDFC Bank Limited on September 13, 2024 and sell it today you would earn a total of  19,715  from holding HDFC Bank Limited or generate 11.83% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Aarti Drugs Limited

HDFC Bank Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aarti Drugs Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aarti Drugs Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with HDFC Bank and Aarti Drugs

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

The idea behind HDFC Bank Limited and Aarti Drugs 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 Commodity Directory module to find actively traded commodities issued by global exchanges.