Correlation Between HDFC Life and Music Broadcast

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

Diversification Opportunities for HDFC Life and Music Broadcast

0.53

Correlation Coefficient

HDFC Life  Music Broadcast

Very weak diversification

The 3 months correlation between HDFC and Music is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Music Broadcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Music Broadcast 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 Music Broadcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Music Broadcast has no effect on the direction of HDFC Life i.e., HDFC Life and Music Broadcast go up and down completely randomly.

Pair Corralation between HDFC Life and Music Broadcast

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 0.71 times more return on investment than Music Broadcast. However, HDFC Life Insurance is 1.4 times less risky than Music Broadcast. It trades about -0.11 of its potential returns per unit of risk. Music Broadcast Limited is currently generating about -0.13 per unit of risk. If you would invest  70,540  in HDFC Life Insurance on September 13, 2024 and sell it today you would lose (7,075) from holding HDFC Life Insurance or give up 10.03% of portfolio value over 90 days.

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

HDFC Life Insurance  vs.  Music Broadcast 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.

Music Broadcast

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Music Broadcast Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with HDFC Life and Music Broadcast

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

The idea behind HDFC Life Insurance and Music Broadcast 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 Transaction History module to view history of all your transactions and understand their impact on performance.