Correlation Between HDFC Life and Power Mech

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

Diversification Opportunities for HDFC Life and Power Mech

0.66

Correlation Coefficient

HDFC Life  Power Mech

Poor diversification

The 3 months correlation between HDFC and Power is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Power Mech Projects in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Mech Projects 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 Power Mech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Mech Projects has no effect on the direction of HDFC Life i.e., HDFC Life and Power Mech go up and down completely randomly.

Pair Corralation between HDFC Life and Power Mech

Assuming the 90 days trading horizon HDFC Life Insurance is expected to under-perform the Power Mech. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Life Insurance is 2.5 times less risky than Power Mech. The stock trades about -0.3 of its potential returns per unit of risk. The Power Mech Projects is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  293,580  in Power Mech Projects on October 6, 2024 and sell it today you would lose (7,345) from holding Power Mech Projects or give up 2.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

HDFC Life Insurance  vs.  Power Mech Projects

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 unsteady 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.

Power Mech Projects

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Mech Projects has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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 Power Mech

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

The idea behind HDFC Life Insurance and Power Mech Projects 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.