Correlation Between POWERGRID Infrastructure and HDFC Life

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

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

Diversification Opportunities for POWERGRID Infrastructure and HDFC Life

0.7

Correlation Coefficient

POWERGRID Infrastructure  HDFC Life

Poor diversification

The 3 months correlation between POWERGRID and HDFC is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding POWERGRID Infrastructure Inves and HDFC Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Life Insurance and POWERGRID Infrastructure 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 POWERGRID Infrastructure Investment are associated (or correlated) with HDFC Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Life Insurance has no effect on the direction of POWERGRID Infrastructure i.e., POWERGRID Infrastructure and HDFC Life go up and down completely randomly.

Pair Corralation between POWERGRID Infrastructure and HDFC Life

Assuming the 90 days trading horizon POWERGRID Infrastructure Investment is expected to generate 0.8 times more return on investment than HDFC Life. However, POWERGRID Infrastructure Investment is 1.25 times less risky than HDFC Life. It trades about -0.2 of its potential returns per unit of risk. HDFC Life Insurance is currently generating about -0.23 per unit of risk. If you would invest  8,759  in POWERGRID Infrastructure Investment on October 8, 2024 and sell it today you would lose (169.00) from holding POWERGRID Infrastructure Investment or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

POWERGRID Infrastructure Inves  vs.  HDFC Life Insurance

POWERGRID Infrastructure

Risk-Adjusted Performance

0 of 100

Very Weak

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

HDFC Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with POWERGRID Infrastructure and HDFC Life

The main advantage of trading using opposite POWERGRID Infrastructure and HDFC Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if POWERGRID Infrastructure position performs unexpectedly, HDFC Life 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 Life will offset losses from the drop in HDFC Life's long position.

The idea behind POWERGRID Infrastructure Investment and HDFC Life Insurance 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.