Correlation Between Garware Hi and HDFC Bank

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

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

Diversification Opportunities for Garware Hi and HDFC Bank

0.71

Correlation Coefficient

Garware Hi  HDFC Bank

Poor diversification

The 3 months correlation between Garware and HDFC is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Garware Hi Tech Films 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 Garware Hi 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 Garware Hi Tech Films 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 Garware Hi i.e., Garware Hi and HDFC Bank go up and down completely randomly.

Pair Corralation between Garware Hi and HDFC Bank

Assuming the 90 days trading horizon Garware Hi Tech Films is expected to generate 2.29 times more return on investment than HDFC Bank. However, Garware Hi is 2.29 times more volatile than HDFC Bank Limited. It trades about 0.18 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.04 per unit of risk. If you would invest  474,245  in Garware Hi Tech Films on September 27, 2024 and sell it today you would earn a total of  40,960  from holding Garware Hi Tech Films or generate 8.64% return on investment over 90 days.

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

Garware Hi Tech Films  vs.  HDFC Bank Limited

Garware Hi Tech

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Garware Hi Tech Films are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Garware Hi unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Garware Hi and HDFC Bank

The main advantage of trading using opposite Garware Hi and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Garware Hi 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 Garware Hi Tech Films 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.