Correlation Between HCL Technologies and Bajaj Finance

Can any of the company-specific risk be diversified away by investing in both HCL Technologies and Bajaj Finance 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 HCL Technologies and Bajaj Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HCL Technologies Limited and Bajaj Finance Limited, you can compare the effects of market volatilities on HCL Technologies and Bajaj Finance 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 HCL Technologies with a short position of Bajaj Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of HCL Technologies and Bajaj Finance.

Diversification Opportunities for HCL Technologies and Bajaj Finance

-0.7

Correlation Coefficient

HCL Technologies  Bajaj Finance

Excellent diversification

The 3 months correlation between HCL and Bajaj is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding HCL Technologies Limited and Bajaj Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Finance Limited and HCL Technologies 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 HCL Technologies Limited are associated (or correlated) with Bajaj Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Finance Limited has no effect on the direction of HCL Technologies i.e., HCL Technologies and Bajaj Finance go up and down completely randomly.

Pair Corralation between HCL Technologies and Bajaj Finance

Assuming the 90 days trading horizon HCL Technologies Limited is expected to generate 0.99 times more return on investment than Bajaj Finance. However, HCL Technologies Limited is 1.01 times less risky than Bajaj Finance. It trades about 0.25 of its potential returns per unit of risk. Bajaj Finance Limited is currently generating about -0.07 per unit of risk. If you would invest  176,295  in HCL Technologies Limited on September 4, 2024 and sell it today you would earn a total of  12,780  from holding HCL Technologies Limited or generate 7.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

HCL Technologies Limited  vs.  Bajaj Finance Limited

HCL Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HCL Technologies Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, HCL Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bajaj Finance Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bajaj Finance Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with HCL Technologies and Bajaj Finance

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

The idea behind HCL Technologies Limited and Bajaj Finance 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.