Correlation Between Power Mech and HDFC Bank

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

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

Diversification Opportunities for Power Mech and HDFC Bank

-0.46

Correlation Coefficient

Power Mech  HDFC Bank

Very good diversification

The 3 months correlation between Power and HDFC is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Power Mech Projects 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 Power Mech 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 Mech Projects 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 Power Mech i.e., Power Mech and HDFC Bank go up and down completely randomly.

Pair Corralation between Power Mech and HDFC Bank

Assuming the 90 days trading horizon Power Mech Projects is expected to under-perform the HDFC Bank. In addition to that, Power Mech is 1.95 times more volatile than HDFC Bank Limited. It trades about -0.14 of its total potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.03 per unit of volatility. If you would invest  175,980  in HDFC Bank Limited on September 21, 2024 and sell it today you would earn a total of  3,370  from holding HDFC Bank Limited or generate 1.91% return on investment over 90 days.

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

Power Mech Projects  vs.  HDFC Bank Limited

Power Mech Projects

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Mech Projects has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

HDFC Bank Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Power Mech and HDFC Bank

The main advantage of trading using opposite Power Mech and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Mech 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 Power Mech Projects 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.