Correlation Between Sampath Bank and HDFC Bank

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

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

Diversification Opportunities for Sampath Bank and HDFC Bank

0.34

Correlation Coefficient

Sampath Bank  HDFC Bank

Weak diversification

The 3 months correlation between Sampath and HDFC is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Sampath Bank PLC and HDFC Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank and Sampath 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 Sampath Bank PLC 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 Sampath Bank i.e., Sampath Bank and HDFC Bank go up and down completely randomly.

Pair Corralation between Sampath Bank and HDFC Bank

Assuming the 90 days trading horizon Sampath Bank PLC is expected to generate 0.81 times more return on investment than HDFC Bank. However, Sampath Bank PLC is 1.24 times less risky than HDFC Bank. It trades about 0.47 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  7,230  in Sampath Bank PLC on September 16, 2024 and sell it today you would earn a total of  3,270  from holding Sampath Bank PLC or generate 45.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Sampath Bank PLC  vs.  HDFC Bank of

Sampath Bank PLC

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sampath Bank PLC are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sampath Bank 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 Sampath Bank and HDFC Bank

The main advantage of trading using opposite Sampath Bank and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sampath Bank 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 Sampath Bank PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.