Correlation Between Life Insurance and HDFC Life

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

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

Diversification Opportunities for Life Insurance and HDFC Life

0.04

Correlation Coefficient

Life Insurance  HDFC Life

Significant diversification

The 3 months correlation between Life and HDFC is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Life Insurance 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 Life Insurance 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 Life Insurance 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 Life Insurance i.e., Life Insurance and HDFC Life go up and down completely randomly.

Pair Corralation between Life Insurance and HDFC Life

Assuming the 90 days trading horizon Life Insurance is expected to generate 1.08 times more return on investment than HDFC Life. However, Life Insurance is 1.08 times more volatile than HDFC Life Insurance. It trades about -0.09 of its potential returns per unit of risk. HDFC Life Insurance is currently generating about -0.1 per unit of risk. If you would invest  101,860  in Life Insurance on September 18, 2024 and sell it today you would lose (9,470) from holding Life Insurance or give up 9.3% of portfolio value over 90 days.

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

Life Insurance  vs.  HDFC Life Insurance

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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

HDFC Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Life Insurance and HDFC Life

The main advantage of trading using opposite Life Insurance and HDFC Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Life Insurance 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 Life Insurance 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.