Correlation Between HDFC Life and Thermax

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

Diversification Opportunities for HDFC Life and Thermax

0.66

Correlation Coefficient

HDFC Life  Thermax

Poor diversification

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

Pair Corralation between HDFC Life and Thermax

Assuming the 90 days trading horizon HDFC Life Insurance is expected to under-perform the Thermax. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Life Insurance is 1.53 times less risky than Thermax. The stock trades about -0.1 of its potential returns per unit of risk. The Thermax Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  520,700  in Thermax Limited on September 18, 2024 and sell it today you would lose (30,215) from holding Thermax Limited or give up 5.8% of portfolio value over 90 days.

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

HDFC Life Insurance  vs.  Thermax 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 unfluctuating 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.

Thermax Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermax Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Thermax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HDFC Life and Thermax

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

The idea behind HDFC Life Insurance and Thermax 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.