Correlation Between Insurance Australia and HDFC Bank

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

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

Diversification Opportunities for Insurance Australia and HDFC Bank

0.33

Correlation Coefficient

Insurance Australia  HDFC Bank

Weak diversification

The 3 months correlation between Insurance and HDFC is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group 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 Insurance Australia 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 Insurance Australia Group 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 Insurance Australia i.e., Insurance Australia and HDFC Bank go up and down completely randomly.

Pair Corralation between Insurance Australia and HDFC Bank

Assuming the 90 days horizon Insurance Australia Group is expected to generate 1.04 times more return on investment than HDFC Bank. However, Insurance Australia is 1.04 times more volatile than HDFC Bank Limited. It trades about 0.15 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.0 per unit of risk. If you would invest  450.00  in Insurance Australia Group on October 26, 2024 and sell it today you would earn a total of  75.00  from holding Insurance Australia Group or generate 16.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Insurance Australia Group  vs.  HDFC Bank Limited

Insurance Australia

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable technical and fundamental indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Insurance Australia and HDFC Bank

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

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.