Correlation Between Vulcan Materials and HDFC Bank

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

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

Diversification Opportunities for Vulcan Materials and HDFC Bank

0.4

Correlation Coefficient

Vulcan Materials  HDFC Bank

Very weak diversification

The 3 months correlation between Vulcan and HDFC is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and HDFC Bank go up and down completely randomly.

Pair Corralation between Vulcan Materials and HDFC Bank

Assuming the 90 days horizon Vulcan Materials is expected to under-perform the HDFC Bank. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 1.1 times less risky than HDFC Bank. The stock trades about -0.15 of its potential returns per unit of risk. The HDFC Bank Limited is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  6,100  in HDFC Bank Limited on December 20, 2024 and sell it today you would lose (550.00) from holding HDFC Bank Limited or give up 9.02% of portfolio value over 90 days.

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

Vulcan Materials  vs.  HDFC Bank Limited

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

HDFC Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Vulcan Materials and HDFC Bank

The main advantage of trading using opposite Vulcan Materials and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.