Correlation Between Indian Hotels and HDFC Life

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

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

Diversification Opportunities for Indian Hotels and HDFC Life

0.15

Correlation Coefficient

Indian Hotels  HDFC Life

Average diversification

The 3 months correlation between Indian and HDFC is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding The Indian Hotels and HDFC Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Life Insurance and Indian Hotels 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 The Indian Hotels are associated (or correlated) with HDFC Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Life Insurance has no effect on the direction of Indian Hotels i.e., Indian Hotels and HDFC Life go up and down completely randomly.

Pair Corralation between Indian Hotels and HDFC Life

Assuming the 90 days trading horizon The Indian Hotels is expected to under-perform the HDFC Life. In addition to that, Indian Hotels is 1.51 times more volatile than HDFC Life Insurance. It trades about -0.04 of its total potential returns per unit of risk. HDFC Life Insurance is currently generating about 0.08 per unit of volatility. If you would invest  62,640  in HDFC Life Insurance on December 26, 2024 and sell it today you would earn a total of  4,670  from holding HDFC Life Insurance or generate 7.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

The Indian Hotels  vs.  HDFC Life Insurance

Indian Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Indian Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Indian Hotels is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

HDFC Life Insurance

Risk-Adjusted Performance

Modest

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

Pair Trading with Indian Hotels and HDFC Life

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

The idea behind The Indian Hotels and HDFC 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.