Correlation Between HDFC Bank and Taj GVK

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

Diversification Opportunities for HDFC Bank and Taj GVK

0.76

Correlation Coefficient

HDFC Bank  Taj GVK

Poor diversification

The 3 months correlation between HDFC and Taj is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Taj GVK Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taj GVK Hotels 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 Taj GVK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taj GVK Hotels has no effect on the direction of HDFC Bank i.e., HDFC Bank and Taj GVK go up and down completely randomly.

Pair Corralation between HDFC Bank and Taj GVK

Assuming the 90 days trading horizon HDFC Bank is expected to generate 4.92 times less return on investment than Taj GVK. But when comparing it to its historical volatility, HDFC Bank Limited is 2.24 times less risky than Taj GVK. It trades about 0.04 of its potential returns per unit of risk. Taj GVK Hotels is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,428  in Taj GVK Hotels on October 5, 2024 and sell it today you would earn a total of  25,267  from holding Taj GVK Hotels or generate 137.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.55%
Values	Daily Returns

HDFC Bank Limited  vs.  Taj GVK Hotels

HDFC Bank Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 11 (%) 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.

Taj GVK Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taj GVK Hotels are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady technical and fundamental indicators, Taj GVK sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Taj GVK

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

The idea behind HDFC Bank Limited and Taj GVK Hotels 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.