Correlation Between HDFC Bank and Hi-Tech Gears

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

Diversification Opportunities for HDFC Bank and Hi-Tech Gears

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between HDFC and Hi-Tech is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and The Hi Tech Gears in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi-Tech Gears 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 Hi-Tech Gears. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi-Tech Gears has no effect on the direction of HDFC Bank i.e., HDFC Bank and Hi-Tech Gears go up and down completely randomly.

Pair Corralation between HDFC Bank and Hi-Tech Gears

Assuming the 90 days trading horizon HDFC Bank is expected to generate 13.01 times less return on investment than Hi-Tech Gears. But when comparing it to its historical volatility, HDFC Bank Limited is 2.69 times less risky than Hi-Tech Gears. It trades about 0.02 of its potential returns per unit of risk. The Hi Tech Gears is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  25,636  in The Hi Tech Gears on November 28, 2024 and sell it today you would earn a total of  41,739  from holding The Hi Tech Gears or generate 162.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

HDFC Bank Limited  vs.  The Hi Tech Gears

 Performance 
       Timeline  
HDFC Bank Limited 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.
Hi-Tech Gears 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days The Hi Tech Gears 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

HDFC Bank and Hi-Tech Gears Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HDFC Bank and Hi-Tech Gears

The main advantage of trading using opposite HDFC Bank and Hi-Tech Gears positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, Hi-Tech Gears 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 Hi-Tech Gears will offset losses from the drop in Hi-Tech Gears' long position.
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The idea behind HDFC Bank Limited and The Hi Tech Gears 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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