Correlation Between Prakash Steelage and HDFC Bank

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

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

Diversification Opportunities for Prakash Steelage and HDFC Bank

0.03

Correlation Coefficient

Prakash Steelage  HDFC Bank

Significant diversification

The 3 months correlation between Prakash and HDFC is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Prakash Steelage Limited 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 Prakash Steelage 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 Prakash Steelage Limited 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 Prakash Steelage i.e., Prakash Steelage and HDFC Bank go up and down completely randomly.

Pair Corralation between Prakash Steelage and HDFC Bank

Assuming the 90 days trading horizon Prakash Steelage Limited is expected to generate 2.71 times more return on investment than HDFC Bank. However, Prakash Steelage is 2.71 times more volatile than HDFC Bank Limited. It trades about 0.05 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.02 per unit of risk. If you would invest  485.00  in Prakash Steelage Limited on October 10, 2024 and sell it today you would earn a total of  323.00  from holding Prakash Steelage Limited or generate 66.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Prakash Steelage Limited  vs.  HDFC Bank Limited

Prakash Steelage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prakash Steelage Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

HDFC Bank Limited

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 3 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prakash Steelage and HDFC Bank

The main advantage of trading using opposite Prakash Steelage and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prakash Steelage 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 Prakash Steelage Limited 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.