Correlation Between Global Health and HDFC Bank

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

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

Diversification Opportunities for Global Health and HDFC Bank

0.81

Correlation Coefficient

Global Health  HDFC Bank

Very poor diversification

The 3 months correlation between Global and HDFC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Global Health Limited and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited and Global Health 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 Global Health Limited 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 Limited has no effect on the direction of Global Health i.e., Global Health and HDFC Bank go up and down completely randomly.

Pair Corralation between Global Health and HDFC Bank

Assuming the 90 days trading horizon Global Health Limited is expected to generate 1.47 times more return on investment than HDFC Bank. However, Global Health is 1.47 times more volatile than HDFC Bank Limited. It trades about -0.03 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.07 per unit of risk. If you would invest  104,545  in Global Health Limited on October 23, 2024 and sell it today you would lose (4,385) from holding Global Health Limited or give up 4.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Global Health Limited  vs.  HDFC Bank Limited

Global Health Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Global Health and HDFC Bank

The main advantage of trading using opposite Global Health and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Health 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 Global Health Limited and HDFC Bank Limited 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..