Correlation Between HDFC Bank and ASML Holding

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

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

Diversification Opportunities for HDFC Bank and ASML Holding

-0.44

Correlation Coefficient

HDFC Bank  ASML Holding

Very good diversification

The 3 months correlation between HDFC and ASML is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and ASML Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASML Holding NV and HDFC Bank 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 HDFC Bank Limited are associated (or correlated) with ASML Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASML Holding NV has no effect on the direction of HDFC Bank i.e., HDFC Bank and ASML Holding go up and down completely randomly.

Pair Corralation between HDFC Bank and ASML Holding

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 1.01 times more return on investment than ASML Holding. However, HDFC Bank is 1.01 times more volatile than ASML Holding NV. It trades about 0.11 of its potential returns per unit of risk. ASML Holding NV is currently generating about 0.0 per unit of risk. If you would invest  7,031  in HDFC Bank Limited on September 12, 2024 and sell it today you would earn a total of  1,249  from holding HDFC Bank Limited or generate 17.76% return on investment over 90 days.

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

HDFC Bank Limited  vs.  ASML Holding NV

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.

ASML Holding NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASML Holding NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, ASML Holding is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HDFC Bank and ASML Holding

The main advantage of trading using opposite HDFC Bank and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, ASML Holding 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 ASML Holding will offset losses from the drop in ASML Holding's long position.

The idea behind HDFC Bank Limited and ASML Holding NV 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.