Correlation Between HDFC Bank and BNP Paribas

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

Diversification Opportunities for HDFC Bank and BNP Paribas

0.78

Correlation Coefficient

HDFC Bank  BNP Paribas

Poor diversification

The 3 months correlation between HDFC and BNP is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and BNP Paribas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNP Paribas SA 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 BNP Paribas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNP Paribas SA has no effect on the direction of HDFC Bank i.e., HDFC Bank and BNP Paribas go up and down completely randomly.

Pair Corralation between HDFC Bank and BNP Paribas

Considering the 90-day investment horizon HDFC Bank Limited is expected to under-perform the BNP Paribas. In addition to that, HDFC Bank is 1.11 times more volatile than BNP Paribas SA. It trades about -0.03 of its total potential returns per unit of risk. BNP Paribas SA is currently generating about 0.06 per unit of volatility. If you would invest  2,994  in BNP Paribas SA on January 26, 2024 and sell it today you would earn a total of  656.00  from holding BNP Paribas SA or generate 21.91% return on investment over 90 days.

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

HDFC Bank Limited  vs.  BNP Paribas SA

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.

BNP Paribas SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BNP Paribas SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, BNP Paribas may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with HDFC Bank and BNP Paribas

The main advantage of trading using opposite HDFC Bank and BNP Paribas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, BNP Paribas 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 BNP Paribas will offset losses from the drop in BNP Paribas' long position.

The idea behind HDFC Bank Limited and BNP Paribas SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.