Correlation Between Royal Orchid and HDFC Life

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

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

Diversification Opportunities for Royal Orchid and HDFC Life

0.63

Correlation Coefficient

Royal Orchid  HDFC Life

Poor diversification

The 3 months correlation between Royal and HDFC is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels 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 Royal Orchid 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 Royal Orchid Hotels 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 Royal Orchid i.e., Royal Orchid and HDFC Life go up and down completely randomly.

Pair Corralation between Royal Orchid and HDFC Life

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to generate 1.96 times more return on investment than HDFC Life. However, Royal Orchid is 1.96 times more volatile than HDFC Life Insurance. It trades about 0.07 of its potential returns per unit of risk. HDFC Life Insurance is currently generating about 0.08 per unit of risk. If you would invest  36,255  in Royal Orchid Hotels on December 26, 2024 and sell it today you would earn a total of  4,265  from holding Royal Orchid Hotels or generate 11.76% return on investment over 90 days.

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

Royal Orchid Hotels  vs.  HDFC Life Insurance

Royal Orchid Hotels

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Royal Orchid sustained solid returns over the last few months and may actually be approaching a breakup point.

HDFC Life Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Life Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, HDFC Life may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Royal Orchid and HDFC Life

The main advantage of trading using opposite Royal Orchid and HDFC Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Orchid 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 Royal Orchid Hotels 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.