Correlation Between HDFC Bank and Mcleod Russel

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

Diversification Opportunities for HDFC Bank and Mcleod Russel

0.66

Correlation Coefficient

HDFC Bank  Mcleod Russel

Poor diversification

The 3 months correlation between HDFC and Mcleod is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Mcleod Russel India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mcleod Russel India 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 Mcleod Russel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mcleod Russel India has no effect on the direction of HDFC Bank i.e., HDFC Bank and Mcleod Russel go up and down completely randomly.

Pair Corralation between HDFC Bank and Mcleod Russel

Assuming the 90 days trading horizon HDFC Bank Limited is expected to under-perform the Mcleod Russel. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Bank Limited is 4.25 times less risky than Mcleod Russel. The stock trades about -0.04 of its potential returns per unit of risk. The Mcleod Russel India is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest  3,127  in Mcleod Russel India on September 24, 2024 and sell it today you would earn a total of  1,629  from holding Mcleod Russel India or generate 52.09% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Mcleod Russel India

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

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 recent stock price disarray, may contribute to short-term losses for the investors.

Mcleod Russel India

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mcleod Russel India are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Mcleod Russel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Mcleod Russel

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

The idea behind HDFC Bank Limited and Mcleod Russel India 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.