Correlation Between HDFC Bank and Ceylon Beverage

Can any of the company-specific risk be diversified away by investing in both HDFC Bank and Ceylon Beverage 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 Bank and Ceylon Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HDFC Bank of and Ceylon Beverage Holdings, you can compare the effects of market volatilities on HDFC Bank and Ceylon Beverage 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 Bank with a short position of Ceylon Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Ceylon Beverage.

Diversification Opportunities for HDFC Bank and Ceylon Beverage

0.44

Correlation Coefficient

HDFC Bank  Ceylon Beverage

Very weak diversification

The 3 months correlation between HDFC and Ceylon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank of and Ceylon Beverage Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Beverage Holdings and HDFC Bank 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 Bank of are associated (or correlated) with Ceylon Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Beverage Holdings has no effect on the direction of HDFC Bank i.e., HDFC Bank and Ceylon Beverage go up and down completely randomly.

Pair Corralation between HDFC Bank and Ceylon Beverage

Assuming the 90 days trading horizon HDFC Bank is expected to generate 4.02 times less return on investment than Ceylon Beverage. But when comparing it to its historical volatility, HDFC Bank of is 1.24 times less risky than Ceylon Beverage. It trades about 0.08 of its potential returns per unit of risk. Ceylon Beverage Holdings is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  190,000  in Ceylon Beverage Holdings on September 13, 2024 and sell it today you would earn a total of  30,025  from holding Ceylon Beverage Holdings or generate 15.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	53.57%
Values	Daily Returns

HDFC Bank of  vs.  Ceylon Beverage Holdings

HDFC Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ceylon Beverage Holdings

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Beverage Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ceylon Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Ceylon Beverage

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

The idea behind HDFC Bank of and Ceylon Beverage Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.