Correlation Between HDFC Bank and ILFS Investment

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

Diversification Opportunities for HDFC Bank and ILFS Investment

-0.49

Correlation Coefficient

HDFC Bank  ILFS Investment

Very good diversification

The 3 months correlation between HDFC and ILFS is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and ILFS Investment Managers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ILFS Investment Managers 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 ILFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ILFS Investment Managers has no effect on the direction of HDFC Bank i.e., HDFC Bank and ILFS Investment go up and down completely randomly.

Pair Corralation between HDFC Bank and ILFS Investment

Assuming the 90 days trading horizon HDFC Bank is expected to generate 5.48 times less return on investment than ILFS Investment. But when comparing it to its historical volatility, HDFC Bank Limited is 2.6 times less risky than ILFS Investment. It trades about 0.02 of its potential returns per unit of risk. ILFS Investment Managers is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  649.00  in ILFS Investment Managers on August 31, 2024 and sell it today you would earn a total of  502.00  from holding ILFS Investment Managers or generate 77.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

HDFC Bank Limited  vs.  ILFS Investment Managers

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in December 2024.

ILFS Investment Managers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ILFS Investment Managers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with HDFC Bank and ILFS Investment

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

The idea behind HDFC Bank Limited and ILFS Investment Managers 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.