Correlation Between HDFC Asset and Avonmore Capital

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

By analyzing existing cross correlation between HDFC Asset Management and Avonmore Capital Management, you can compare the effects of market volatilities on HDFC Asset and Avonmore Capital 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 Asset with a short position of Avonmore Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Asset and Avonmore Capital.

Diversification Opportunities for HDFC Asset and Avonmore Capital

0.24

Correlation Coefficient

HDFC Asset  Avonmore Capital

Modest diversification

The 3 months correlation between HDFC and Avonmore is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and Avonmore Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avonmore Capital Man and HDFC Asset 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 Asset Management are associated (or correlated) with Avonmore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avonmore Capital Man has no effect on the direction of HDFC Asset i.e., HDFC Asset and Avonmore Capital go up and down completely randomly.

Pair Corralation between HDFC Asset and Avonmore Capital

Assuming the 90 days trading horizon HDFC Asset Management is expected to under-perform the Avonmore Capital. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Asset Management is 1.69 times less risky than Avonmore Capital. The stock trades about -0.03 of its potential returns per unit of risk. The Avonmore Capital Management is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,415  in Avonmore Capital Management on September 2, 2024 and sell it today you would earn a total of  350.00  from holding Avonmore Capital Management or generate 24.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

HDFC Asset Management  vs.  Avonmore Capital Management

HDFC Asset Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Avonmore Capital Man

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avonmore Capital Management are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Avonmore Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Asset and Avonmore Capital

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

The idea behind HDFC Asset Management and Avonmore Capital Management 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.