Correlation Between Bank of America and HDFC Bank
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and HDFC Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and HDFC Bank Limited, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and HDFC Bank.
Diversification Opportunities for Bank of America and HDFC Bank
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and HDFC is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and HDFC Bank go up and down completely randomly.
Pair Corralation between Bank of America and HDFC Bank
Assuming the 90 days trading horizon Bank of America is expected to generate 1.18 times less return on investment than HDFC Bank. But when comparing it to its historical volatility, Bank of America is 2.01 times less risky than HDFC Bank. It trades about 0.16 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 5,705 in HDFC Bank Limited on September 1, 2024 and sell it today you would earn a total of 2,239 from holding HDFC Bank Limited or generate 39.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.22% |
| Values | Daily Returns |
Bank of America vs. HDFC Bank Limited
Performance |
| Timeline |
| Bank of America |
| HDFC Bank Limited |
Bank of America and HDFC Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and HDFC Bank
The main advantage of trading using opposite Bank of America and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Technos SA | Bank of America vs. Waste Management | Bank of America vs. Dell Technologies | Bank of America vs. Marfrig Global Foods |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
Other Complementary Tools
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |