Correlation Between HDFC Bank and JSW Holdings

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

Diversification Opportunities for HDFC Bank and JSW Holdings

0.48

Correlation Coefficient

HDFC Bank  JSW Holdings

Very weak diversification

The 3 months correlation between HDFC and JSW is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and JSW Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSW Holdings 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 JSW Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSW Holdings Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and JSW Holdings go up and down completely randomly.

Pair Corralation between HDFC Bank and JSW Holdings

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.33 times more return on investment than JSW Holdings. However, HDFC Bank Limited is 3.05 times less risky than JSW Holdings. It trades about -0.04 of its potential returns per unit of risk. JSW Holdings Limited is currently generating about -0.15 per unit of risk. If you would invest  178,560  in HDFC Bank Limited on September 24, 2024 and sell it today you would lose (1,410) from holding HDFC Bank Limited or give up 0.79% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  JSW Holdings Limited

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

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 very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

JSW Holdings Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Holdings Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, JSW Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and JSW Holdings

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

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