Correlation Between Varun Beverages and HDFC Bank

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

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

Diversification Opportunities for Varun Beverages and HDFC Bank

0.8

Correlation Coefficient

Varun Beverages  HDFC Bank

Very poor diversification

The 3 months correlation between Varun and HDFC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages 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 Varun Beverages 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 Varun Beverages 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 Varun Beverages i.e., Varun Beverages and HDFC Bank go up and down completely randomly.

Pair Corralation between Varun Beverages and HDFC Bank

Assuming the 90 days trading horizon Varun Beverages Limited is expected to under-perform the HDFC Bank. In addition to that, Varun Beverages is 1.66 times more volatile than HDFC Bank Limited. It trades about -0.36 of its total potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.35 per unit of volatility. If you would invest  179,075  in HDFC Bank Limited on October 26, 2024 and sell it today you would lose (14,095) from holding HDFC Bank Limited or give up 7.87% of portfolio value over 90 days.

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

Varun Beverages Limited  vs.  HDFC Bank Limited

Varun Beverages

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Varun Beverages Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Varun Beverages and HDFC Bank

The main advantage of trading using opposite Varun Beverages and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Varun Beverages 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 Varun Beverages 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.