Correlation Between HDFC Bank and Newgen Software

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

Diversification Opportunities for HDFC Bank and Newgen Software

-0.02

Correlation Coefficient

HDFC Bank  Newgen Software

Good diversification

The 3 months correlation between HDFC and Newgen is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Newgen Software Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newgen Software Tech 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 Newgen Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newgen Software Tech has no effect on the direction of HDFC Bank i.e., HDFC Bank and Newgen Software go up and down completely randomly.

Pair Corralation between HDFC Bank and Newgen Software

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.27 times more return on investment than Newgen Software. However, HDFC Bank Limited is 3.73 times less risky than Newgen Software. It trades about 0.05 of its potential returns per unit of risk. Newgen Software Technologies is currently generating about -0.18 per unit of risk. If you would invest  177,790  in HDFC Bank Limited on December 30, 2024 and sell it today you would earn a total of  5,030  from holding HDFC Bank Limited or generate 2.83% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Newgen Software Technologies

HDFC Bank Limited

Risk-Adjusted Performance

Insignificant

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

Newgen Software Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Newgen Software Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with HDFC Bank and Newgen Software

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

The idea behind HDFC Bank Limited and Newgen Software Technologies 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.