Correlation Between United Overseas and HDFC Bank

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

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

Diversification Opportunities for United Overseas and HDFC Bank

0.81

Correlation Coefficient

United Overseas  HDFC Bank

Very poor diversification

The 3 months correlation between United and HDFC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding United Overseas Bank 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 United Overseas 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 United Overseas Bank 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 United Overseas i.e., United Overseas and HDFC Bank go up and down completely randomly.

Pair Corralation between United Overseas and HDFC Bank

Assuming the 90 days horizon United Overseas is expected to generate 9.49 times less return on investment than HDFC Bank. But when comparing it to its historical volatility, United Overseas Bank is 1.79 times less risky than HDFC Bank. It trades about 0.01 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,050  in HDFC Bank Limited on September 24, 2024 and sell it today you would earn a total of  50.00  from holding HDFC Bank Limited or generate 0.83% return on investment over 90 days.

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

United Overseas Bank  vs.  HDFC Bank Limited

United Overseas Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Overseas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HDFC Bank Limited

Risk-Adjusted Performance

3 of 100

Insignificant

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. Despite nearly stable technical and fundamental indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United Overseas and HDFC Bank

The main advantage of trading using opposite United Overseas and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Overseas 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 United Overseas Bank 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.