Correlation Between HDFC Bank and US Bancorp

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

Diversification Opportunities for HDFC Bank and US Bancorp

-0.46

Correlation Coefficient

HDFC Bank  US Bancorp

Very good diversification

The 3 months correlation between HDFC and USB-PH is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of HDFC Bank i.e., HDFC Bank and US Bancorp go up and down completely randomly.

Pair Corralation between HDFC Bank and US Bancorp

Considering the 90-day investment horizon HDFC Bank Limited is expected to generate 2.2 times more return on investment than US Bancorp. However, HDFC Bank is 2.2 times more volatile than US Bancorp. It trades about 0.05 of its potential returns per unit of risk. US Bancorp is currently generating about -0.08 per unit of risk. If you would invest  6,147  in HDFC Bank Limited on January 7, 2025 and sell it today you would earn a total of  231.00  from holding HDFC Bank Limited or generate 3.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

HDFC Bank Limited  vs.  US Bancorp

HDFC Bank Limited

Risk-Adjusted Performance

Modest

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.

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with HDFC Bank and US Bancorp

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

The idea behind HDFC Bank Limited and US 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.