Correlation Between Postal Savings and HDFC Bank

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

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

Diversification Opportunities for Postal Savings and HDFC Bank

-0.18

Correlation Coefficient

Postal Savings  HDFC Bank

Good diversification

The 3 months correlation between Postal and HDFC is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Postal Savings Bank 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 Postal Savings 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 Postal Savings Bank 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 Postal Savings i.e., Postal Savings and HDFC Bank go up and down completely randomly.

Pair Corralation between Postal Savings and HDFC Bank

Assuming the 90 days horizon Postal Savings Bank is expected to under-perform the HDFC Bank. In addition to that, Postal Savings is 1.5 times more volatile than HDFC Bank Limited. It trades about -0.01 of its total potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.02 per unit of volatility. If you would invest  5,409  in HDFC Bank Limited on January 24, 2024 and sell it today you would earn a total of  421.00  from holding HDFC Bank Limited or generate 7.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.78%
Values	Daily Returns

Postal Savings Bank  vs.  HDFC Bank Limited

Postal Savings Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Postal Savings Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Postal Savings may actually be approaching a critical reversion point that can send shares even higher in May 2024.

HDFC Bank Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Postal Savings and HDFC Bank

The main advantage of trading using opposite Postal Savings and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Postal Savings 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 Postal Savings Bank 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.