Correlation Between Simmons First and HDFC Bank

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

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

Diversification Opportunities for Simmons First and HDFC Bank

0.12

Correlation Coefficient

Simmons First  HDFC Bank

Average diversification

The 3 months correlation between Simmons and HDFC is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Simmons First National 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 Simmons First 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 Simmons First National 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 Simmons First i.e., Simmons First and HDFC Bank go up and down completely randomly.

Pair Corralation between Simmons First and HDFC Bank

Given the investment horizon of 90 days Simmons First is expected to generate 4.82 times less return on investment than HDFC Bank. In addition to that, Simmons First is 1.38 times more volatile than HDFC Bank Limited. It trades about 0.0 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 25, 2024 and sell it today you would earn a total of  417.00  from holding HDFC Bank Limited or generate 7.71% return on investment over 90 days.

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

Simmons First National  vs.  HDFC Bank Limited

Simmons First National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simmons First National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Simmons First is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

HDFC Bank Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 3 (%) 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 Simmons First and HDFC Bank

The main advantage of trading using opposite Simmons First and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Simmons First 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 Simmons First National 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.