Correlation Between HDFC Mutual and Life Insurance

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

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

Diversification Opportunities for HDFC Mutual and Life Insurance

0.0

Correlation Coefficient

HDFC Mutual  Life Insurance

Pay attention - limited upside

The 3 months correlation between HDFC and Life is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Mutual Fund and Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Insurance and HDFC Mutual 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 Mutual Fund are associated (or correlated) with Life Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Insurance has no effect on the direction of HDFC Mutual i.e., HDFC Mutual and Life Insurance go up and down completely randomly.

Pair Corralation between HDFC Mutual and Life Insurance

Assuming the 90 days trading horizon HDFC Mutual is expected to generate 4.94 times less return on investment than Life Insurance. But when comparing it to its historical volatility, HDFC Mutual Fund is 6.21 times less risky than Life Insurance. It trades about 0.08 of its potential returns per unit of risk. Life Insurance is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  56,936  in Life Insurance on October 5, 2024 and sell it today you would earn a total of  33,299  from holding Life Insurance or generate 58.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.88%
Values	Daily Returns

HDFC Mutual Fund  vs.  Life Insurance

HDFC Mutual Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Mutual Fund has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, HDFC Mutual is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Life Insurance is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HDFC Mutual and Life Insurance

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

The idea behind HDFC Mutual Fund and 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.