Correlation Between HDFC Bank and REC

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

Diversification Opportunities for HDFC Bank and REC

0.41

Correlation Coefficient

HDFC Bank  REC

Very weak diversification

The 3 months correlation between HDFC and REC is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and REC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REC Limited 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 REC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REC Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and REC go up and down completely randomly.

Pair Corralation between HDFC Bank and REC

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.56 times more return on investment than REC. However, HDFC Bank Limited is 1.77 times less risky than REC. It trades about 0.05 of its potential returns per unit of risk. REC Limited is currently generating about -0.03 per unit of risk. If you would invest  166,240  in HDFC Bank Limited on October 10, 2024 and sell it today you would earn a total of  5,100  from holding HDFC Bank Limited or generate 3.07% return on investment over 90 days.

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

HDFC Bank Limited  vs.  REC Limited

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.

REC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days REC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, REC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HDFC Bank and REC

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

The idea behind HDFC Bank Limited and REC Limited 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.