Correlation Between HDFC Bank and Bank of America
Can any of the company-specific risk be diversified away by investing in both HDFC Bank and Bank of America 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 Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HDFC Bank Limited and Bank of America, you can compare the effects of market volatilities on HDFC Bank and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Bank of America.
Diversification Opportunities for HDFC Bank and Bank of America
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HDFC and Bank is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Limited are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of HDFC Bank i.e., HDFC Bank and Bank of America go up and down completely randomly.
Pair Corralation between HDFC Bank and Bank of America
Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 2.01 times more return on investment than Bank of America. However, HDFC Bank is 2.01 times more volatile than Bank of America. It trades about 0.09 of its potential returns per unit of risk. Bank of America is currently generating about 0.16 per unit of risk. 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 |
HDFC Bank Limited vs. Bank of America
Performance |
| Timeline |
| HDFC Bank Limited |
| Bank of America |
HDFC Bank and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HDFC Bank and Bank of America
The main advantage of trading using opposite HDFC Bank and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.The idea behind HDFC Bank Limited and Bank of America 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.| 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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