Correlation Between BNP Paribas and HDFC Bank

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Can any of the company-specific risk be diversified away by investing in both BNP Paribas 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 BNP Paribas and HDFC Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BNP Paribas SA and HDFC Bank Limited, you can compare the effects of market volatilities on BNP Paribas 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 BNP Paribas with a short position of HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of BNP Paribas and HDFC Bank.

Diversification Opportunities for BNP Paribas and HDFC Bank

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between BNP and HDFC is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BNP Paribas SA 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 BNP Paribas 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 BNP Paribas SA 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 BNP Paribas i.e., BNP Paribas and HDFC Bank go up and down completely randomly.

Pair Corralation between BNP Paribas and HDFC Bank

Assuming the 90 days horizon BNP Paribas SA is expected to generate 1.58 times more return on investment than HDFC Bank. However, BNP Paribas is 1.58 times more volatile than HDFC Bank Limited. It trades about 0.04 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.03 per unit of risk. If you would invest  5,753  in BNP Paribas SA on December 30, 2023 and sell it today you would earn a total of  1,247  from holding BNP Paribas SA or generate 21.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

BNP Paribas SA  vs.  HDFC Bank Limited

 Performance 
       Timeline  
BNP Paribas SA 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days BNP Paribas SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BNP Paribas is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
HDFC Bank Limited 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days HDFC Bank Limited 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 fundamental indicators remain somewhat strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

BNP Paribas and HDFC Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BNP Paribas and HDFC Bank

The main advantage of trading using opposite BNP Paribas and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BNP Paribas 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 BNP Paribas SA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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