Correlation Between HDFC Bank and Aster DM

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

Diversification Opportunities for HDFC Bank and Aster DM

0.81

Correlation Coefficient

HDFC Bank  Aster DM

Very poor diversification

The 3 months correlation between HDFC and Aster is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Aster DM Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aster DM Healthcare 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 Aster DM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aster DM Healthcare has no effect on the direction of HDFC Bank i.e., HDFC Bank and Aster DM go up and down completely randomly.

Pair Corralation between HDFC Bank and Aster DM

Assuming the 90 days trading horizon HDFC Bank is expected to generate 1.52 times less return on investment than Aster DM. But when comparing it to its historical volatility, HDFC Bank Limited is 1.75 times less risky than Aster DM. It trades about 0.15 of its potential returns per unit of risk. Aster DM Healthcare is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  41,570  in Aster DM Healthcare on September 13, 2024 and sell it today you would earn a total of  7,335  from holding Aster DM Healthcare or generate 17.64% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Aster DM Healthcare

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.

Aster DM Healthcare

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aster DM Healthcare are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Aster DM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Aster DM

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

The idea behind HDFC Bank Limited and Aster DM Healthcare 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.

Check out your portfolio center.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.