Correlation Between HDFC Life and Royal Orchid

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

Diversification Opportunities for HDFC Life and Royal Orchid

-0.67

Correlation Coefficient

HDFC Life  Royal Orchid

Excellent diversification

The 3 months correlation between HDFC and Royal is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Royal Orchid Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid 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 Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotels has no effect on the direction of HDFC Life i.e., HDFC Life and Royal Orchid go up and down completely randomly.

Pair Corralation between HDFC Life and Royal Orchid

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 0.59 times more return on investment than Royal Orchid. However, HDFC Life Insurance is 1.7 times less risky than Royal Orchid. It trades about 0.04 of its potential returns per unit of risk. Royal Orchid Hotels is currently generating about 0.02 per unit of risk. If you would invest  57,661  in HDFC Life Insurance on October 22, 2024 and sell it today you would earn a total of  6,559  from holding HDFC Life Insurance or generate 11.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.59%
Values	Daily Returns

HDFC Life Insurance  vs.  Royal Orchid Hotels

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.

Royal Orchid Hotels

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Royal Orchid sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Life and Royal Orchid

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

The idea behind HDFC Life Insurance and Royal Orchid 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 Commodity Directory module to find actively traded commodities issued by global exchanges.