Correlation Between HDFC Bank and BF Investment

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

Diversification Opportunities for HDFC Bank and BF Investment

0.58

Correlation Coefficient

HDFC Bank  BF Investment

Very weak diversification

The 3 months correlation between HDFC and BFINVEST is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and BF Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Investment 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 BF Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Investment Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and BF Investment go up and down completely randomly.

Pair Corralation between HDFC Bank and BF Investment

Assuming the 90 days trading horizon HDFC Bank is expected to generate 2.4 times less return on investment than BF Investment. But when comparing it to its historical volatility, HDFC Bank Limited is 2.18 times less risky than BF Investment. It trades about 0.04 of its potential returns per unit of risk. BF Investment Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  50,565  in BF Investment Limited on October 5, 2024 and sell it today you would earn a total of  16,365  from holding BF Investment Limited or generate 32.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.67%
Values	Daily Returns

HDFC Bank Limited  vs.  BF Investment Limited

HDFC Bank Limited

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 8 (%) 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 February 2025.

BF Investment Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and BF Investment

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

The idea behind HDFC Bank Limited and BF Investment 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..