Correlation Between MagnaChip Semiconductor and HDFC Bank
Can any of the company-specific risk be diversified away by investing in both MagnaChip Semiconductor 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 MagnaChip Semiconductor and HDFC Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MagnaChip Semiconductor Corp and HDFC Bank Limited, you can compare the effects of market volatilities on MagnaChip Semiconductor 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 MagnaChip Semiconductor with a short position of HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of MagnaChip Semiconductor and HDFC Bank.
Diversification Opportunities for MagnaChip Semiconductor and HDFC Bank
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between MagnaChip and HDFC is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor Corp 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and HDFC Bank go up and down completely randomly.
Pair Corralation between MagnaChip Semiconductor and HDFC Bank
Assuming the 90 days trading horizon MagnaChip Semiconductor Corp is expected to generate 2.14 times more return on investment than HDFC Bank. However, MagnaChip Semiconductor is 2.14 times more volatile than HDFC Bank Limited. It trades about 0.36 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.06 per unit of risk. If you would invest 378.00 in MagnaChip Semiconductor Corp on November 27, 2024 and sell it today you would earn a total of 102.00 from holding MagnaChip Semiconductor Corp or generate 26.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MagnaChip Semiconductor Corp vs. HDFC Bank Limited
Performance |
| Timeline |
| MagnaChip Semiconductor |
| HDFC Bank Limited |
MagnaChip Semiconductor and HDFC Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MagnaChip Semiconductor and HDFC Bank
The main advantage of trading using opposite MagnaChip Semiconductor and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp and HDFC Bank 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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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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