Correlation Between HDFC Bank and JB Chemicals

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

Diversification Opportunities for HDFC Bank and JB Chemicals

0.03

Correlation Coefficient

HDFC Bank  JB Chemicals

Significant diversification

The 3 months correlation between HDFC and JBCHEPHARM is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and JB Chemicals Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JB Chemicals Pharmac 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 JB Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JB Chemicals Pharmac has no effect on the direction of HDFC Bank i.e., HDFC Bank and JB Chemicals go up and down completely randomly.

Pair Corralation between HDFC Bank and JB Chemicals

Assuming the 90 days trading horizon HDFC Bank is expected to generate 11.99 times less return on investment than JB Chemicals. But when comparing it to its historical volatility, HDFC Bank Limited is 4.7 times less risky than JB Chemicals. It trades about 0.02 of its potential returns per unit of risk. JB Chemicals Pharmaceuticals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  101,857  in JB Chemicals Pharmaceuticals on September 25, 2024 and sell it today you would earn a total of  84,113  from holding JB Chemicals Pharmaceuticals or generate 82.58% return on investment over 90 days.

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

HDFC Bank Limited  vs.  JB Chemicals Pharmaceuticals

HDFC Bank Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

JB Chemicals Pharmac

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JB Chemicals Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, JB Chemicals is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with HDFC Bank and JB Chemicals

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

The idea behind HDFC Bank Limited and JB Chemicals Pharmaceuticals 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.