Correlation Between KIOCL and HDFC Asset

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

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

Diversification Opportunities for KIOCL and HDFC Asset

0.69

Correlation Coefficient

KIOCL  HDFC Asset

Poor diversification

The 3 months correlation between KIOCL and HDFC is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding KIOCL Limited and HDFC Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Asset Management and KIOCL 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 KIOCL Limited are associated (or correlated) with HDFC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Asset Management has no effect on the direction of KIOCL i.e., KIOCL and HDFC Asset go up and down completely randomly.

Pair Corralation between KIOCL and HDFC Asset

Assuming the 90 days trading horizon KIOCL Limited is expected to under-perform the HDFC Asset. In addition to that, KIOCL is 1.91 times more volatile than HDFC Asset Management. It trades about -0.17 of its total potential returns per unit of risk. HDFC Asset Management is currently generating about -0.11 per unit of volatility. If you would invest  420,425  in HDFC Asset Management on November 29, 2024 and sell it today you would lose (51,545) from holding HDFC Asset Management or give up 12.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

KIOCL Limited  vs.  HDFC Asset Management

KIOCL Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days KIOCL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

HDFC Asset Management

Risk-Adjusted Performance

Very Weak

Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with KIOCL and HDFC Asset

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

The idea behind KIOCL Limited and HDFC Asset Management 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.