Correlation Between HDFC Bank and Lion Brewery

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

By analyzing existing cross correlation between HDFC Bank of and Lion Brewery Ceylon, you can compare the effects of market volatilities on HDFC Bank and Lion Brewery 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 Lion Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Lion Brewery.

Diversification Opportunities for HDFC Bank and Lion Brewery

0.3

Correlation Coefficient

HDFC Bank  Lion Brewery

Weak diversification

The 3 months correlation between HDFC and Lion is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank of and Lion Brewery Ceylon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Brewery Ceylon 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 of are associated (or correlated) with Lion Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Brewery Ceylon has no effect on the direction of HDFC Bank i.e., HDFC Bank and Lion Brewery go up and down completely randomly.

Pair Corralation between HDFC Bank and Lion Brewery

Assuming the 90 days trading horizon HDFC Bank is expected to generate 2.05 times less return on investment than Lion Brewery. But when comparing it to its historical volatility, HDFC Bank of is 1.44 times less risky than Lion Brewery. It trades about 0.11 of its potential returns per unit of risk. Lion Brewery Ceylon is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  100,050  in Lion Brewery Ceylon on September 16, 2024 and sell it today you would earn a total of  21,775  from holding Lion Brewery Ceylon or generate 21.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.61%
Values	Daily Returns

HDFC Bank of  vs.  Lion Brewery Ceylon

HDFC Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lion Brewery Ceylon

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Brewery Ceylon are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lion Brewery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Lion Brewery

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

The idea behind HDFC Bank of and Lion Brewery Ceylon 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.