Correlation Between HDFC Life and Spencers Retail

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

Diversification Opportunities for HDFC Life and Spencers Retail

0.54

Correlation Coefficient

HDFC Life  Spencers Retail

Very weak diversification

The 3 months correlation between HDFC and Spencers is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Spencers Retail Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spencers Retail 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 Spencers Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spencers Retail has no effect on the direction of HDFC Life i.e., HDFC Life and Spencers Retail go up and down completely randomly.

Pair Corralation between HDFC Life and Spencers Retail

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 0.52 times more return on investment than Spencers Retail. However, HDFC Life Insurance is 1.92 times less risky than Spencers Retail. It trades about -0.13 of its potential returns per unit of risk. Spencers Retail Limited is currently generating about -0.08 per unit of risk. If you would invest  74,530  in HDFC Life Insurance on August 31, 2024 and sell it today you would lose (8,760) from holding HDFC Life Insurance or give up 11.75% 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.  Spencers Retail 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.

Spencers Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spencers Retail Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with HDFC Life and Spencers Retail

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

The idea behind HDFC Life Insurance and Spencers Retail 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.