Correlation Between HDFC Bank and Ravi Kumar

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

Diversification Opportunities for HDFC Bank and Ravi Kumar

0.65

Correlation Coefficient

HDFC Bank  Ravi Kumar

Poor diversification

The 3 months correlation between HDFC and Ravi is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Ravi Kumar Distilleries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ravi Kumar Distilleries 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 Ravi Kumar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ravi Kumar Distilleries has no effect on the direction of HDFC Bank i.e., HDFC Bank and Ravi Kumar go up and down completely randomly.

Pair Corralation between HDFC Bank and Ravi Kumar

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.63 times more return on investment than Ravi Kumar. However, HDFC Bank Limited is 1.58 times less risky than Ravi Kumar. It trades about -0.35 of its potential returns per unit of risk. Ravi Kumar Distilleries is currently generating about -0.35 per unit of risk. If you would invest  187,000  in HDFC Bank Limited on October 8, 2024 and sell it today you would lose (12,080) from holding HDFC Bank Limited or give up 6.46% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  Ravi Kumar Distilleries

HDFC Bank Limited

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ravi Kumar Distilleries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ravi Kumar Distilleries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Ravi Kumar may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HDFC Bank and Ravi Kumar

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

The idea behind HDFC Bank Limited and Ravi Kumar Distilleries 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.