Correlation Between Nippon Life and HDFC Asset

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

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

Diversification Opportunities for Nippon Life and HDFC Asset

0.19

Correlation Coefficient

Nippon Life  HDFC Asset

Average diversification

The 3 months correlation between Nippon and HDFC is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Life India 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 Nippon Life 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 Nippon Life India 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 Nippon Life i.e., Nippon Life and HDFC Asset go up and down completely randomly.

Pair Corralation between Nippon Life and HDFC Asset

Assuming the 90 days trading horizon Nippon Life India is expected to generate 2.13 times more return on investment than HDFC Asset. However, Nippon Life is 2.13 times more volatile than HDFC Asset Management. It trades about 0.14 of its potential returns per unit of risk. HDFC Asset Management is currently generating about -0.06 per unit of risk. If you would invest  70,770  in Nippon Life India on October 5, 2024 and sell it today you would earn a total of  5,015  from holding Nippon Life India or generate 7.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Nippon Life India  vs.  HDFC Asset Management

Nippon Life India

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Nippon Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

HDFC Asset Management

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Asset Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Nippon Life and HDFC Asset

The main advantage of trading using opposite Nippon Life and HDFC Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Life 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 Nippon Life India 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.