Correlation Between HDFC Bank and JGCHEMICALS

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

Diversification Opportunities for HDFC Bank and JGCHEMICALS

0.61

Correlation Coefficient

HDFC Bank  JGCHEMICALS

Poor diversification

The 3 months correlation between HDFC and JGCHEMICALS is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and JGCHEMICALS LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JGCHEMICALS 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 JGCHEMICALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JGCHEMICALS LIMITED has no effect on the direction of HDFC Bank i.e., HDFC Bank and JGCHEMICALS go up and down completely randomly.

Pair Corralation between HDFC Bank and JGCHEMICALS

Assuming the 90 days trading horizon HDFC Bank is expected to generate 11.33 times less return on investment than JGCHEMICALS. But when comparing it to its historical volatility, HDFC Bank Limited is 3.08 times less risky than JGCHEMICALS. It trades about 0.03 of its potential returns per unit of risk. JGCHEMICALS LIMITED is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  18,480  in JGCHEMICALS LIMITED on October 4, 2024 and sell it today you would earn a total of  22,490  from holding JGCHEMICALS LIMITED or generate 121.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	61.61%
Values	Daily Returns

HDFC Bank Limited  vs.  JGCHEMICALS LIMITED

HDFC Bank Limited

Risk-Adjusted Performance

8 of 100

OK

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 weak basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

JGCHEMICALS LIMITED

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JGCHEMICALS LIMITED are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, JGCHEMICALS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HDFC Bank and JGCHEMICALS

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

The idea behind HDFC Bank Limited and JGCHEMICALS 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.