Correlation Between HDFC Bank and Raj Rayon

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

Diversification Opportunities for HDFC Bank and Raj Rayon

-0.13

Correlation Coefficient

HDFC Bank  Raj Rayon

Good diversification

The 3 months correlation between HDFC and Raj is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Raj Rayon Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raj Rayon Industries 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 Raj Rayon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raj Rayon Industries has no effect on the direction of HDFC Bank i.e., HDFC Bank and Raj Rayon go up and down completely randomly.

Pair Corralation between HDFC Bank and Raj Rayon

Assuming the 90 days trading horizon HDFC Bank Limited is expected to under-perform the Raj Rayon. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Bank Limited is 1.56 times less risky than Raj Rayon. The stock trades about -0.41 of its potential returns per unit of risk. The Raj Rayon Industries is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  2,441  in Raj Rayon Industries on October 10, 2024 and sell it today you would lose (187.00) from holding Raj Rayon Industries or give up 7.66% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  Raj Rayon Industries

HDFC Bank Limited

Risk-Adjusted Performance

3 of 100

Modest

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.

Raj Rayon Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Raj Rayon Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Raj Rayon is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HDFC Bank and Raj Rayon

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

The idea behind HDFC Bank Limited and Raj Rayon Industries 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.