Correlation Between HDFC Bank and Roto Pumps

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

Diversification Opportunities for HDFC Bank and Roto Pumps

0.49

Correlation Coefficient

HDFC Bank  Roto Pumps

Very weak diversification

The 3 months correlation between HDFC and Roto is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Roto Pumps Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roto Pumps Limited 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 Roto Pumps. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roto Pumps Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and Roto Pumps go up and down completely randomly.

Pair Corralation between HDFC Bank and Roto Pumps

Assuming the 90 days trading horizon HDFC Bank Limited is expected to under-perform the Roto Pumps. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Bank Limited is 3.31 times less risky than Roto Pumps. The stock trades about -0.04 of its potential returns per unit of risk. The Roto Pumps Limited is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  24,055  in Roto Pumps Limited on September 24, 2024 and sell it today you would earn a total of  5,935  from holding Roto Pumps Limited or generate 24.67% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Roto Pumps Limited

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Roto Pumps Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Roto Pumps Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Roto Pumps may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HDFC Bank and Roto Pumps

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

The idea behind HDFC Bank Limited and Roto Pumps 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.