Correlation Between Occidental Petroleum and HDFC Bank

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

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

Diversification Opportunities for Occidental Petroleum and HDFC Bank

0.07

Correlation Coefficient

Occidental Petroleum  HDFC Bank

Significant diversification

The 3 months correlation between Occidental and HDFC is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum 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 Occidental Petroleum 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 Occidental Petroleum 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 Occidental Petroleum i.e., Occidental Petroleum and HDFC Bank go up and down completely randomly.

Pair Corralation between Occidental Petroleum and HDFC Bank

Assuming the 90 days trading horizon Occidental Petroleum is expected to generate 0.9 times more return on investment than HDFC Bank. However, Occidental Petroleum is 1.11 times less risky than HDFC Bank. It trades about 0.33 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.21 per unit of risk. If you would invest  4,833  in Occidental Petroleum on October 9, 2024 and sell it today you would earn a total of  297.00  from holding Occidental Petroleum or generate 6.15% return on investment over 90 days.

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

Occidental Petroleum  vs.  HDFC Bank Limited

Occidental Petroleum

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Occidental Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Occidental Petroleum and HDFC Bank

The main advantage of trading using opposite Occidental Petroleum and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Occidental Petroleum 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 Occidental Petroleum 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.