Correlation Between Paramount Communications and HDFC Bank

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

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

Diversification Opportunities for Paramount Communications and HDFC Bank

-0.21

Correlation Coefficient

Paramount Communications  HDFC Bank

Very good diversification

The 3 months correlation between Paramount and HDFC is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Paramount Communications Limit and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited and Paramount Communications 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 Paramount Communications Limited 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 Limited has no effect on the direction of Paramount Communications i.e., Paramount Communications and HDFC Bank go up and down completely randomly.

Pair Corralation between Paramount Communications and HDFC Bank

Assuming the 90 days trading horizon Paramount Communications Limited is expected to generate 3.25 times more return on investment than HDFC Bank. However, Paramount Communications is 3.25 times more volatile than HDFC Bank Limited. It trades about 0.33 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.5 per unit of risk. If you would invest  6,595  in Paramount Communications Limited on September 17, 2024 and sell it today you would earn a total of  1,407  from holding Paramount Communications Limited or generate 21.33% return on investment over 90 days.

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

Paramount Communications Limit  vs.  HDFC Bank Limited

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

HDFC Bank Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Paramount Communications and HDFC Bank

The main advantage of trading using opposite Paramount Communications and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Paramount Communications 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 Paramount Communications Limited and HDFC Bank 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.