Correlation Between HDFC Bank and Aarti Industries

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Can any of the company-specific risk be diversified away by investing in both HDFC Bank and Aarti Industries 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 Aarti Industries 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 Aarti Industries Limited, you can compare the effects of market volatilities on HDFC Bank and Aarti Industries 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 Aarti Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Aarti Industries.

Diversification Opportunities for HDFC Bank and Aarti Industries

-0.56
  Correlation Coefficient

Excellent diversification

The 3 months correlation between HDFC and Aarti is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Aarti Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarti Industries 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 Aarti Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarti Industries has no effect on the direction of HDFC Bank i.e., HDFC Bank and Aarti Industries go up and down completely randomly.

Pair Corralation between HDFC Bank and Aarti Industries

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.53 times more return on investment than Aarti Industries. However, HDFC Bank Limited is 1.89 times less risky than Aarti Industries. It trades about -0.02 of its potential returns per unit of risk. Aarti Industries Limited is currently generating about -0.28 per unit of risk. If you would invest  176,805  in HDFC Bank Limited on August 25, 2024 and sell it today you would lose (2,245) from holding HDFC Bank Limited or give up 1.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy97.67%
ValuesDaily Returns

HDFC Bank Limited  vs.  Aarti Industries Limited

 Performance 
       Timeline  
HDFC Bank Limited 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Aarti Industries 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aarti Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

HDFC Bank and Aarti Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HDFC Bank and Aarti Industries

The main advantage of trading using opposite HDFC Bank and Aarti Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, Aarti Industries 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 Aarti Industries will offset losses from the drop in Aarti Industries' long position.
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The idea behind HDFC Bank Limited and Aarti Industries 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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