Correlation Between HDFC Life and SBI Life

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

Diversification Opportunities for HDFC Life and SBI Life

0.88

Correlation Coefficient

HDFC Life  SBI Life

Very poor diversification

The 3 months correlation between HDFC and SBI is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and SBI Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Life Insurance 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 SBI Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Life Insurance has no effect on the direction of HDFC Life i.e., HDFC Life and SBI Life go up and down completely randomly.

Pair Corralation between HDFC Life and SBI Life

Assuming the 90 days trading horizon HDFC Life Insurance is expected to under-perform the SBI Life. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Life Insurance is 1.46 times less risky than SBI Life. The stock trades about -0.32 of its potential returns per unit of risk. The SBI Life Insurance is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  145,260  in SBI Life Insurance on October 5, 2024 and sell it today you would lose (3,035) from holding SBI Life Insurance or give up 2.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

HDFC Life Insurance  vs.  SBI Life Insurance

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 unfluctuating 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.

SBI Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with HDFC Life and SBI Life

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

The idea behind HDFC Life Insurance and SBI Life Insurance 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.