Correlation Between HDFC Bank and Agro Tech

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

Diversification Opportunities for HDFC Bank and Agro Tech

0.41

Correlation Coefficient

HDFC Bank  Agro Tech

Very weak diversification

The 3 months correlation between HDFC and Agro is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Agro Tech Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agro Tech Foods 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 Agro Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agro Tech Foods has no effect on the direction of HDFC Bank i.e., HDFC Bank and Agro Tech go up and down completely randomly.

Pair Corralation between HDFC Bank and Agro Tech

Assuming the 90 days trading horizon HDFC Bank is expected to generate 1.93 times less return on investment than Agro Tech. But when comparing it to its historical volatility, HDFC Bank Limited is 2.64 times less risky than Agro Tech. It trades about 0.15 of its potential returns per unit of risk. Agro Tech Foods is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  80,586  in Agro Tech Foods on September 12, 2024 and sell it today you would earn a total of  17,434  from holding Agro Tech Foods or generate 21.63% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Agro Tech Foods

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 uncertain basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Agro Tech Foods

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agro Tech Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Agro Tech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Agro Tech

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

The idea behind HDFC Bank Limited and Agro Tech Foods 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.