Correlation Between HDFC Bank and Jagsonpal Pharmaceuticals

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

Diversification Opportunities for HDFC Bank and Jagsonpal Pharmaceuticals

0.76

Correlation Coefficient

HDFC Bank  Jagsonpal Pharmaceuticals

Poor diversification

The 3 months correlation between HDFC and Jagsonpal is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Jagsonpal Pharmaceuticals Limi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jagsonpal Pharmaceuticals 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 Jagsonpal Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jagsonpal Pharmaceuticals has no effect on the direction of HDFC Bank i.e., HDFC Bank and Jagsonpal Pharmaceuticals go up and down completely randomly.

Pair Corralation between HDFC Bank and Jagsonpal Pharmaceuticals

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.27 times more return on investment than Jagsonpal Pharmaceuticals. However, HDFC Bank Limited is 3.72 times less risky than Jagsonpal Pharmaceuticals. It trades about -0.06 of its potential returns per unit of risk. Jagsonpal Pharmaceuticals Limited is currently generating about -0.1 per unit of risk. If you would invest  181,230  in HDFC Bank Limited on September 28, 2024 and sell it today you would lose (2,155) from holding HDFC Bank Limited or give up 1.19% of portfolio value over 90 days.

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

HDFC Bank Limited  vs.  Jagsonpal Pharmaceuticals Limi

HDFC Bank Limited

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Jagsonpal Pharmaceuticals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jagsonpal Pharmaceuticals Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Jagsonpal Pharmaceuticals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Jagsonpal Pharmaceuticals

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

The idea behind HDFC Bank Limited and Jagsonpal Pharmaceuticals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.