Correlation Between HDFC Bank and ABB India

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

Diversification Opportunities for HDFC Bank and ABB India

-0.32

Correlation Coefficient

HDFC Bank  ABB India

Very good diversification

The 3 months correlation between HDFC and ABB is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and ABB India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB 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 ABB India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB India Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and ABB India go up and down completely randomly.

Pair Corralation between HDFC Bank and ABB India

Assuming the 90 days trading horizon HDFC Bank is expected to generate 5.98 times less return on investment than ABB India. But when comparing it to its historical volatility, HDFC Bank Limited is 1.71 times less risky than ABB India. It trades about 0.03 of its potential returns per unit of risk. ABB India Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  283,464  in ABB India Limited on August 31, 2024 and sell it today you would earn a total of  458,661  from holding ABB India Limited or generate 161.81% return on investment over 90 days.

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

HDFC Bank Limited  vs.  ABB India Limited

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in December 2024.

ABB India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABB India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ABB India is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HDFC Bank and ABB India

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

The idea behind HDFC Bank Limited and ABB 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.