Correlation Between HDFC Bank and BDO Unibank

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

Diversification Opportunities for HDFC Bank and BDO Unibank

-0.27

Correlation Coefficient

HDFC Bank  BDO Unibank

Very good diversification

The 3 months correlation between HDFC and BDO is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and BDO Unibank ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BDO Unibank ADR 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 BDO Unibank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BDO Unibank ADR has no effect on the direction of HDFC Bank i.e., HDFC Bank and BDO Unibank go up and down completely randomly.

Pair Corralation between HDFC Bank and BDO Unibank

Considering the 90-day investment horizon HDFC Bank Limited is expected to generate 0.88 times more return on investment than BDO Unibank. However, HDFC Bank Limited is 1.13 times less risky than BDO Unibank. It trades about 0.14 of its potential returns per unit of risk. BDO Unibank ADR is currently generating about -0.27 per unit of risk. If you would invest  5,597  in HDFC Bank Limited on January 28, 2024 and sell it today you would earn a total of  237.00  from holding HDFC Bank Limited or generate 4.23% return on investment over 90 days.

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

HDFC Bank Limited  vs.  BDO Unibank ADR

HDFC Bank Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 4 (%) 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.

BDO Unibank ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BDO Unibank ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BDO Unibank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HDFC Bank and BDO Unibank

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

The idea behind HDFC Bank Limited and BDO Unibank ADR 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.