Correlation Between HDFC Bank and Este Lauder

Can any of the company-specific risk be diversified away by investing in both HDFC Bank and Este Lauder 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 Este Lauder 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 The Este Lauder, you can compare the effects of market volatilities on HDFC Bank and Este Lauder 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 Este Lauder. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Este Lauder.

Diversification Opportunities for HDFC Bank and Este Lauder

-0.36

Correlation Coefficient

HDFC Bank  Este Lauder

Very good diversification

The 3 months correlation between HDFC and Este is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and The Este Lauder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Este Lauder 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 Este Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Este Lauder has no effect on the direction of HDFC Bank i.e., HDFC Bank and Este Lauder go up and down completely randomly.

Pair Corralation between HDFC Bank and Este Lauder

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.69 times more return on investment than Este Lauder. However, HDFC Bank Limited is 1.44 times less risky than Este Lauder. It trades about 0.14 of its potential returns per unit of risk. The Este Lauder is currently generating about -0.02 per unit of risk. If you would invest  6,462  in HDFC Bank Limited on September 24, 2024 and sell it today you would earn a total of  1,554  from holding HDFC Bank Limited or generate 24.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

HDFC Bank Limited  vs.  The Este Lauder

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) 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.

Este Lauder

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with HDFC Bank and Este Lauder

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

The idea behind HDFC Bank Limited and The Este Lauder 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.