Correlation Between HDFC Bank and Motisons Jewellers

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

Diversification Opportunities for HDFC Bank and Motisons Jewellers

0.18

Correlation Coefficient

HDFC Bank  Motisons Jewellers

Average diversification

The 3 months correlation between HDFC and Motisons is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Motisons Jewellers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motisons Jewellers 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 Motisons Jewellers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motisons Jewellers has no effect on the direction of HDFC Bank i.e., HDFC Bank and Motisons Jewellers go up and down completely randomly.

Pair Corralation between HDFC Bank and Motisons Jewellers

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.4 times more return on investment than Motisons Jewellers. However, HDFC Bank Limited is 2.53 times less risky than Motisons Jewellers. It trades about -0.06 of its potential returns per unit of risk. Motisons Jewellers is currently generating about -0.05 per unit of risk. If you would invest  171,455  in HDFC Bank Limited on October 22, 2024 and sell it today you would lose (7,780) from holding HDFC Bank Limited or give up 4.54% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  Motisons Jewellers

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.

Motisons Jewellers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Motisons Jewellers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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 Motisons Jewellers

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

The idea behind HDFC Bank Limited and Motisons Jewellers 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.