Correlation Between HDFC Life and Indian Hotels

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

Diversification Opportunities for HDFC Life and Indian Hotels

0.15

Correlation Coefficient

HDFC Life  Indian Hotels

Average diversification

The 3 months correlation between HDFC and Indian is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and The Indian Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Hotels 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 Indian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Hotels has no effect on the direction of HDFC Life i.e., HDFC Life and Indian Hotels go up and down completely randomly.

Pair Corralation between HDFC Life and Indian Hotels

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 0.66 times more return on investment than Indian Hotels. However, HDFC Life Insurance is 1.51 times less risky than Indian Hotels. It trades about 0.08 of its potential returns per unit of risk. The Indian Hotels is currently generating about -0.04 per unit of risk. If you would invest  62,640  in HDFC Life Insurance on December 26, 2024 and sell it today you would earn a total of  4,670  from holding HDFC Life Insurance or generate 7.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

HDFC Life Insurance  vs.  The Indian Hotels

HDFC Life Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Life Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, HDFC Life may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Indian Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Indian Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Indian Hotels is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HDFC Life and Indian Hotels

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

The idea behind HDFC Life Insurance and The Indian 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..