Correlation Between HDFC Life and MRF

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

Diversification Opportunities for HDFC Life and MRF

-0.12

Correlation Coefficient

HDFC Life  MRF

Good diversification

The 3 months correlation between HDFC and MRF is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF 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 MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of HDFC Life i.e., HDFC Life and MRF go up and down completely randomly.

Pair Corralation between HDFC Life and MRF

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 1.26 times more return on investment than MRF. However, HDFC Life is 1.26 times more volatile than MRF Limited. It trades about 0.04 of its potential returns per unit of risk. MRF Limited is currently generating about 0.04 per unit of risk. If you would invest  51,228  in HDFC Life Insurance on October 23, 2024 and sell it today you would earn a total of  12,177  from holding HDFC Life Insurance or generate 23.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

HDFC Life Insurance  vs.  MRF 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 inconsistent performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with HDFC Life and MRF

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

The idea behind HDFC Life Insurance and MRF 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.