Correlation Between Microsoft and HDFC Bank

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

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

Diversification Opportunities for Microsoft and HDFC Bank

0.54

Correlation Coefficient

Microsoft  HDFC Bank

Very weak diversification

The 3 months correlation between Microsoft and HDFC is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and HDFC Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and HDFC Bank go up and down completely randomly.

Pair Corralation between Microsoft and HDFC Bank

Assuming the 90 days trading horizon Microsoft is expected to under-perform the HDFC Bank. In addition to that, Microsoft is 1.25 times more volatile than HDFC Bank. It trades about -0.16 of its total potential returns per unit of risk. HDFC Bank is currently generating about -0.06 per unit of volatility. If you would invest  6,150  in HDFC Bank on December 23, 2024 and sell it today you would lose (300.00) from holding HDFC Bank or give up 4.88% of portfolio value over 90 days.

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

Microsoft  vs.  HDFC Bank

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft 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 technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

HDFC Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days HDFC Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HDFC Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and HDFC Bank

The main advantage of trading using opposite Microsoft and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and HDFC Bank 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.