Correlation Between Banco Do and HDFC Bank

Can any of the company-specific risk be diversified away by investing in both Banco Do 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 Banco Do and HDFC Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banco do Brasil and HDFC Bank Limited, you can compare the effects of market volatilities on Banco Do 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 Banco Do with a short position of HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Do and HDFC Bank.

Diversification Opportunities for Banco Do and HDFC Bank

0.2

Correlation Coefficient

Banco Do  HDFC Bank

Modest diversification

The 3 months correlation between Banco and HDFC is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil 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 Banco Do 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 Banco do Brasil 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 Banco Do i.e., Banco Do and HDFC Bank go up and down completely randomly.

Pair Corralation between Banco Do and HDFC Bank

Assuming the 90 days trading horizon Banco do Brasil is expected to under-perform the HDFC Bank. But the stock apears to be less risky and, when comparing its historical volatility, Banco do Brasil is 1.83 times less risky than HDFC Bank. The stock trades about -0.09 of its potential returns per unit of risk. The HDFC Bank Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,453  in HDFC Bank Limited on January 26, 2024 and sell it today you would earn a total of  373.00  from holding HDFC Bank Limited or generate 6.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Banco do Brasil  vs.  HDFC Bank Limited

Banco do Brasil

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco do Brasil are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Banco Do is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

HDFC Bank Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, HDFC Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Banco Do and HDFC Bank

The main advantage of trading using opposite Banco Do and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Do 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 Banco do Brasil 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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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .