Correlation Between HDFC Life and Asian Hotels

Can any of the company-specific risk be diversified away by investing in both HDFC Life and Asian Hotels 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 Life and Asian Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HDFC Life Insurance and Asian Hotels Limited, you can compare the effects of market volatilities on HDFC Life and Asian Hotels 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 Life with a short position of Asian Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Life and Asian Hotels.

Diversification Opportunities for HDFC Life and Asian Hotels

-0.7

Correlation Coefficient

HDFC Life  Asian Hotels

Excellent diversification

The 3 months correlation between HDFC and Asian is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Asian Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Hotels Limited and HDFC Life 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 Life Insurance are associated (or correlated) with Asian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Hotels Limited has no effect on the direction of HDFC Life i.e., HDFC Life and Asian Hotels go up and down completely randomly.

Pair Corralation between HDFC Life and Asian Hotels

Assuming the 90 days trading horizon HDFC Life Insurance is expected to under-perform the Asian Hotels. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Life Insurance is 2.36 times less risky than Asian Hotels. The stock trades about -0.12 of its potential returns per unit of risk. The Asian Hotels Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  18,064  in Asian Hotels Limited on October 22, 2024 and sell it today you would earn a total of  11,856  from holding Asian Hotels Limited or generate 65.63% return on investment over 90 days.

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

HDFC Life Insurance  vs.  Asian Hotels Limited

HDFC Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Asian Hotels Limited

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Asian Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Life and Asian Hotels

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

The idea behind HDFC Life Insurance and Asian Hotels 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.