Correlation Between HDFC Bank and Power Mech

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

Diversification Opportunities for HDFC Bank and Power Mech

-0.44

Correlation Coefficient

HDFC Bank  Power Mech

Very good diversification

The 3 months correlation between HDFC and Power is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Power Mech Projects in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Mech Projects 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 Power Mech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Mech Projects has no effect on the direction of HDFC Bank i.e., HDFC Bank and Power Mech go up and down completely randomly.

Pair Corralation between HDFC Bank and Power Mech

Assuming the 90 days trading horizon HDFC Bank is expected to generate 9.16 times less return on investment than Power Mech. But when comparing it to its historical volatility, HDFC Bank Limited is 4.79 times less risky than Power Mech. It trades about 0.03 of its potential returns per unit of risk. Power Mech Projects is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  106,833  in Power Mech Projects on September 25, 2024 and sell it today you would earn a total of  148,827  from holding Power Mech Projects or generate 139.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.39%
Values	Daily Returns

HDFC Bank Limited  vs.  Power Mech Projects

HDFC Bank Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 1 (%) 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 current stock price disarray, may contribute to short-term losses for the investors.

Power Mech Projects

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Mech Projects has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with HDFC Bank and Power Mech

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

The idea behind HDFC Bank Limited and Power Mech Projects 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.