Correlation Between HDFC Bank and Jubilant Foodworks

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

Diversification Opportunities for HDFC Bank and Jubilant Foodworks

-0.1

Correlation Coefficient

HDFC Bank  Jubilant Foodworks

Good diversification

The 3 months correlation between HDFC and Jubilant is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Jubilant Foodworks Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jubilant Foodworks 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 Jubilant Foodworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jubilant Foodworks has no effect on the direction of HDFC Bank i.e., HDFC Bank and Jubilant Foodworks go up and down completely randomly.

Pair Corralation between HDFC Bank and Jubilant Foodworks

Assuming the 90 days trading horizon HDFC Bank Limited is expected to under-perform the Jubilant Foodworks. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Bank Limited is 2.12 times less risky than Jubilant Foodworks. The stock trades about -0.05 of its potential returns per unit of risk. The Jubilant Foodworks Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  65,190  in Jubilant Foodworks Limited on December 1, 2024 and sell it today you would lose (2,580) from holding Jubilant Foodworks Limited or give up 3.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

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

Jubilant Foodworks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jubilant Foodworks Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Jubilant Foodworks is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HDFC Bank and Jubilant Foodworks

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

The idea behind HDFC Bank Limited and Jubilant Foodworks 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.