Correlation Between HDFC Bank and Warner Music

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

Diversification Opportunities for HDFC Bank and Warner Music

0.66

Correlation Coefficient

HDFC Bank  Warner Music

Poor diversification

The 3 months correlation between HDFC and Warner is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group 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 Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of HDFC Bank i.e., HDFC Bank and Warner Music go up and down completely randomly.

Pair Corralation between HDFC Bank and Warner Music

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 1.85 times more return on investment than Warner Music. However, HDFC Bank is 1.85 times more volatile than Warner Music Group. It trades about 0.1 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.07 per unit of risk. If you would invest  5,910  in HDFC Bank Limited on September 12, 2024 and sell it today you would earn a total of  2,370  from holding HDFC Bank Limited or generate 40.1% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Warner Music Group

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.

Warner Music Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Warner Music sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Warner Music

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

The idea behind HDFC Bank Limited and Warner Music Group 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.