Correlation Between HDFC Bank and JM Financial

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

Diversification Opportunities for HDFC Bank and JM Financial

0.76

Correlation Coefficient

HDFC Bank  JM Financial

Poor diversification

The 3 months correlation between HDFC and JMFINANCIL is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and JM Financial Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JM Financial 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 JM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JM Financial Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and JM Financial go up and down completely randomly.

Pair Corralation between HDFC Bank and JM Financial

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.42 times more return on investment than JM Financial. However, HDFC Bank Limited is 2.38 times less risky than JM Financial. It trades about -0.13 of its potential returns per unit of risk. JM Financial Limited is currently generating about -0.25 per unit of risk. If you would invest  186,010  in HDFC Bank Limited on December 4, 2024 and sell it today you would lose (15,855) from holding HDFC Bank Limited or give up 8.52% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  JM Financial Limited

HDFC Bank Limited

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

JM Financial Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days JM Financial Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with HDFC Bank and JM Financial

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

The idea behind HDFC Bank Limited and JM Financial 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.