Correlation Between HDFC Bank and Nippon Life

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

Diversification Opportunities for HDFC Bank and Nippon Life

0.72

Correlation Coefficient

HDFC Bank  Nippon Life

Poor diversification

The 3 months correlation between HDFC and Nippon is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Nippon Life India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Life India 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 Nippon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Life India has no effect on the direction of HDFC Bank i.e., HDFC Bank and Nippon Life go up and down completely randomly.

Pair Corralation between HDFC Bank and Nippon Life

Assuming the 90 days trading horizon HDFC Bank is expected to generate 9.36 times less return on investment than Nippon Life. But when comparing it to its historical volatility, HDFC Bank Limited is 2.09 times less risky than Nippon Life. It trades about 0.01 of its potential returns per unit of risk. Nippon Life India is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  68,666  in Nippon Life India on September 22, 2024 and sell it today you would earn a total of  6,359  from holding Nippon Life India or generate 9.26% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Nippon Life India

HDFC Bank Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 1 (%) 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 recent stock price disarray, may contribute to short-term losses for the investors.

Nippon Life India

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Nippon Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HDFC Bank and Nippon Life

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

The idea behind HDFC Bank Limited and Nippon Life India 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.