Correlation Between HDFC Bank and First Bancorp

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

Diversification Opportunities for HDFC Bank and First Bancorp

0.52

Correlation Coefficient

HDFC Bank  First Bancorp

Very weak diversification

The 3 months correlation between HDFC and First is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp 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 First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of HDFC Bank i.e., HDFC Bank and First Bancorp go up and down completely randomly.

Pair Corralation between HDFC Bank and First Bancorp

Considering the 90-day investment horizon HDFC Bank Limited is expected to generate 0.83 times more return on investment than First Bancorp. However, HDFC Bank Limited is 1.2 times less risky than First Bancorp. It trades about 0.07 of its potential returns per unit of risk. First Bancorp is currently generating about 0.01 per unit of risk. If you would invest  7,088  in HDFC Bank Limited on May 14, 2025 and sell it today you would earn a total of  321.00  from holding HDFC Bank Limited or generate 4.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

HDFC Bank Limited  vs.  First Bancorp

HDFC Bank Limited

Risk-Adjusted Performance

Mild

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 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.

First Bancorp

Risk-Adjusted Performance

Weakest

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, First Bancorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with HDFC Bank and First Bancorp

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

The idea behind HDFC Bank Limited and First Bancorp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.