Correlation Between HDFC Bank and Generic Engineering

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

Diversification Opportunities for HDFC Bank and Generic Engineering

-0.11

Correlation Coefficient

HDFC Bank  Generic Engineering

Good diversification

The 3 months correlation between HDFC and Generic is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Generic Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generic Engineering 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 Generic Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generic Engineering has no effect on the direction of HDFC Bank i.e., HDFC Bank and Generic Engineering go up and down completely randomly.

Pair Corralation between HDFC Bank and Generic Engineering

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.45 times more return on investment than Generic Engineering. However, HDFC Bank Limited is 2.24 times less risky than Generic Engineering. It trades about 0.14 of its potential returns per unit of risk. Generic Engineering Construction is currently generating about 0.04 per unit of risk. If you would invest  166,595  in HDFC Bank Limited on September 13, 2024 and sell it today you would earn a total of  19,330  from holding HDFC Bank Limited or generate 11.6% 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.  Generic Engineering Constructi

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.

Generic Engineering

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Generic Engineering Construction are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Generic Engineering may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HDFC Bank and Generic Engineering

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

The idea behind HDFC Bank Limited and Generic Engineering Construction 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.