Correlation Between Banco Do and HDFC Bank

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

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

Diversification Opportunities for Banco Do and HDFC Bank

-0.74

Correlation Coefficient

Banco Do  HDFC Bank

Pay attention - limited upside

The 3 months correlation between Banco and HDFC is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Nordeste 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 Banco Do 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 Banco do Nordeste 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 Banco Do i.e., Banco Do and HDFC Bank go up and down completely randomly.

Pair Corralation between Banco Do and HDFC Bank

Assuming the 90 days trading horizon Banco Do is expected to generate 1.85 times less return on investment than HDFC Bank. But when comparing it to its historical volatility, Banco do Nordeste is 1.2 times less risky than HDFC Bank. It trades about 0.02 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  6,728  in HDFC Bank Limited on September 12, 2024 and sell it today you would earn a total of  1,552  from holding HDFC Bank Limited or generate 23.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	74.93%
Values	Daily Returns

Banco do Nordeste  vs.  HDFC Bank Limited

Banco do Nordeste

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco do Nordeste has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

HDFC Bank Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Do and HDFC Bank

The main advantage of trading using opposite Banco Do and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Do 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 Banco do Nordeste 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.