Correlation Between HDFC Bank and Jyoti CNC

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

Diversification Opportunities for HDFC Bank and Jyoti CNC

0.69

Correlation Coefficient

HDFC Bank  Jyoti CNC

Poor diversification

The 3 months correlation between HDFC and Jyoti is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Jyoti CNC Automation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jyoti CNC Automation 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 Jyoti CNC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jyoti CNC Automation has no effect on the direction of HDFC Bank i.e., HDFC Bank and Jyoti CNC go up and down completely randomly.

Pair Corralation between HDFC Bank and Jyoti CNC

Assuming the 90 days trading horizon HDFC Bank is expected to generate 15.02 times less return on investment than Jyoti CNC. But when comparing it to its historical volatility, HDFC Bank Limited is 2.88 times less risky than Jyoti CNC. It trades about 0.03 of its potential returns per unit of risk. Jyoti CNC Automation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  43,420  in Jyoti CNC Automation on September 28, 2024 and sell it today you would earn a total of  91,070  from holding Jyoti CNC Automation or generate 209.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	48.05%
Values	Daily Returns

HDFC Bank Limited  vs.  Jyoti CNC Automation

HDFC Bank Limited

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 3 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

Jyoti CNC Automation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jyoti CNC Automation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Jyoti CNC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Jyoti CNC

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

The idea behind HDFC Bank Limited and Jyoti CNC Automation 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..