Correlation Between Power Finance and HDFC Asset

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

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

Diversification Opportunities for Power Finance and HDFC Asset

0.21

Correlation Coefficient

Power Finance  HDFC Asset

Modest diversification

The 3 months correlation between Power and HDFC is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Power Finance 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 Power Finance 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 Power Finance 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 Power Finance i.e., Power Finance and HDFC Asset go up and down completely randomly.

Pair Corralation between Power Finance and HDFC Asset

Assuming the 90 days trading horizon Power Finance is expected to generate 1.35 times more return on investment than HDFC Asset. However, Power Finance is 1.35 times more volatile than HDFC Asset Management. It trades about 0.06 of its potential returns per unit of risk. HDFC Asset Management is currently generating about 0.03 per unit of risk. If you would invest  43,544  in Power Finance on October 6, 2024 and sell it today you would earn a total of  2,936  from holding Power Finance or generate 6.74% return on investment over 90 days.

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

Power Finance  vs.  HDFC Asset Management

Power Finance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Power Finance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

HDFC Asset Management

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Asset Management are ranked lower than 2 (%) 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 Power Finance and HDFC Asset

The main advantage of trading using opposite Power Finance and HDFC Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Finance 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 Power Finance 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.