Correlation Between HNB Finance and HDFC Bank

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

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

Diversification Opportunities for HNB Finance and HDFC Bank

0.24

Correlation Coefficient

HNB Finance  HDFC Bank

Modest diversification

The 3 months correlation between HNB and HDFC is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding HNB Finance and HDFC Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank and HNB Finance 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 HNB Finance are associated (or correlated) with HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank has no effect on the direction of HNB Finance i.e., HNB Finance and HDFC Bank go up and down completely randomly.

Pair Corralation between HNB Finance and HDFC Bank

Assuming the 90 days trading horizon HNB Finance is expected to under-perform the HDFC Bank. In addition to that, HNB Finance is 2.59 times more volatile than HDFC Bank of. It trades about 0.0 of its total potential returns per unit of risk. HDFC Bank of is currently generating about 0.08 per unit of volatility. If you would invest  3,190  in HDFC Bank of on September 24, 2024 and sell it today you would earn a total of  260.00  from holding HDFC Bank of or generate 8.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

HNB Finance  vs.  HDFC Bank of

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNB Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HNB Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HDFC Bank

Risk-Adjusted Performance

6 of 100

Modest

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.

Pair Trading with HNB Finance and HDFC Bank

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

The idea behind HNB Finance and HDFC Bank of 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.