Correlation Between HDFC Bank and Byke Hospitality

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

Diversification Opportunities for HDFC Bank and Byke Hospitality

0.29

Correlation Coefficient

HDFC Bank  Byke Hospitality

Modest diversification

The 3 months correlation between HDFC and Byke is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and The Byke Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Byke Hospitality 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 Byke Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Byke Hospitality has no effect on the direction of HDFC Bank i.e., HDFC Bank and Byke Hospitality go up and down completely randomly.

Pair Corralation between HDFC Bank and Byke Hospitality

Assuming the 90 days trading horizon HDFC Bank is expected to generate 7.33 times less return on investment than Byke Hospitality. But when comparing it to its historical volatility, HDFC Bank Limited is 2.42 times less risky than Byke Hospitality. It trades about 0.02 of its potential returns per unit of risk. The Byke Hospitality is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,554  in The Byke Hospitality on October 22, 2024 and sell it today you would earn a total of  1,320  from holding The Byke Hospitality or generate 17.47% return on investment over 90 days.

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

HDFC Bank Limited  vs.  The Byke Hospitality

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Byke Hospitality

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Byke Hospitality are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Byke Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Byke Hospitality

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

The idea behind HDFC Bank Limited and The Byke Hospitality 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.