Correlation Between Lion Brewery and HDFC Bank

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

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

Diversification Opportunities for Lion Brewery and HDFC Bank

0.42

Correlation Coefficient

Lion Brewery  HDFC Bank

Very weak diversification

The 3 months correlation between Lion and HDFC is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Lion Brewery Ceylon and HDFC Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank and Lion Brewery 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 Lion Brewery Ceylon are associated (or correlated) with HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank has no effect on the direction of Lion Brewery i.e., Lion Brewery and HDFC Bank go up and down completely randomly.

Pair Corralation between Lion Brewery and HDFC Bank

Assuming the 90 days trading horizon Lion Brewery Ceylon is expected to generate 1.44 times more return on investment than HDFC Bank. However, Lion Brewery is 1.44 times more volatile than HDFC Bank of. It trades about 0.15 of its potential returns per unit of risk. HDFC Bank of is currently generating about 0.11 per unit of risk. 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	Weak
Accuracy	96.61%
Values	Daily Returns

Lion Brewery Ceylon  vs.  HDFC Bank of

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.

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.

Pair Trading with Lion Brewery and HDFC Bank

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

The idea behind Lion Brewery Ceylon and HDFC Bank of 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.