Correlation Between HDFC Bank and Fino Payments

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

Diversification Opportunities for HDFC Bank and Fino Payments

-0.54

Correlation Coefficient

HDFC Bank  Fino Payments

Excellent diversification

The 3 months correlation between HDFC and Fino is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Fino Payments Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fino Payments Bank 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 Fino Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fino Payments Bank has no effect on the direction of HDFC Bank i.e., HDFC Bank and Fino Payments go up and down completely randomly.

Pair Corralation between HDFC Bank and Fino Payments

Assuming the 90 days trading horizon HDFC Bank is expected to generate 2.92 times less return on investment than Fino Payments. But when comparing it to its historical volatility, HDFC Bank Limited is 2.29 times less risky than Fino Payments. It trades about 0.03 of its potential returns per unit of risk. Fino Payments Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  25,470  in Fino Payments Bank on September 12, 2024 and sell it today you would earn a total of  9,475  from holding Fino Payments Bank or generate 37.2% 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.  Fino Payments Bank

HDFC Bank Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fino Payments Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fino Payments Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting 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 HDFC Bank and Fino Payments

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

The idea behind HDFC Bank Limited and Fino Payments Bank 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.