Correlation Between HDFC Bank and Maharashtra Scooters

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

Diversification Opportunities for HDFC Bank and Maharashtra Scooters

-0.72

Correlation Coefficient

HDFC Bank  Maharashtra Scooters

Pay attention - limited upside

The 3 months correlation between HDFC and Maharashtra is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Maharashtra Scooters Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maharashtra Scooters 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 Maharashtra Scooters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maharashtra Scooters has no effect on the direction of HDFC Bank i.e., HDFC Bank and Maharashtra Scooters go up and down completely randomly.

Pair Corralation between HDFC Bank and Maharashtra Scooters

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.45 times more return on investment than Maharashtra Scooters. However, HDFC Bank Limited is 2.24 times less risky than Maharashtra Scooters. It trades about 0.15 of its potential returns per unit of risk. Maharashtra Scooters Limited is currently generating about -0.05 per unit of risk. If you would invest  161,780  in HDFC Bank Limited on October 5, 2024 and sell it today you would earn a total of  17,595  from holding HDFC Bank Limited or generate 10.88% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Maharashtra Scooters Limited

HDFC Bank Limited

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Maharashtra Scooters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maharashtra Scooters Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating 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.

Pair Trading with HDFC Bank and Maharashtra Scooters

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

The idea behind HDFC Bank Limited and Maharashtra Scooters 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.