Correlation Between CARSALESCOM and HDFC Bank

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

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

Diversification Opportunities for CARSALESCOM and HDFC Bank

0.39

Correlation Coefficient

CARSALESCOM  HDFC Bank

Weak diversification

The 3 months correlation between CARSALESCOM and HDFC is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and HDFC Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank and CARSALESCOM 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 CARSALESCOM 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 has no effect on the direction of CARSALESCOM i.e., CARSALESCOM and HDFC Bank go up and down completely randomly.

Pair Corralation between CARSALESCOM and HDFC Bank

Assuming the 90 days trading horizon CARSALESCOM is expected to generate 1.08 times more return on investment than HDFC Bank. However, CARSALESCOM is 1.08 times more volatile than HDFC Bank. It trades about -0.03 of its potential returns per unit of risk. HDFC Bank is currently generating about -0.05 per unit of risk. If you would invest  2,420  in CARSALESCOM on October 10, 2024 and sell it today you would lose (60.00) from holding CARSALESCOM or give up 2.48% of portfolio value over 90 days.

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

CARSALESCOM  vs.  HDFC Bank

CARSALESCOM

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALESCOM is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

HDFC Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CARSALESCOM and HDFC Bank

The main advantage of trading using opposite CARSALESCOM and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALESCOM 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 CARSALESCOM and HDFC Bank 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.