Correlation Between Caterpillar and Hdfc Bank

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Can any of the company-specific risk be diversified away by investing in both Caterpillar 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 Caterpillar and Hdfc Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Hdfc Bank, you can compare the effects of market volatilities on Caterpillar 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 Caterpillar with a short position of Hdfc Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Hdfc Bank.

Diversification Opportunities for Caterpillar and Hdfc Bank

-0.13
  Correlation Coefficient

Good diversification

The 3 months correlation between Caterpillar and Hdfc Bank is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Hdfc Bank Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hdfc Bank and Caterpillar 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 Caterpillar 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 has no effect on the direction of Caterpillar i.e., Caterpillar and Hdfc Bank go up and down completely randomly.

Pair Corralation between Caterpillar and Hdfc Bank

Considering the 90-day investment horizon Caterpillar is expected to generate 6.72 times less return on investment than Hdfc Bank. In addition to that, Caterpillar is 1.44 times more volatile than Hdfc Bank. It trades about 0.02 of its total potential returns per unit of risk. Hdfc Bank is currently generating about 0.23 per unit of volatility. If you would invest  5,540  in Hdfc Bank on May 21, 2022 and sell it today you would earn a total of  922.00  from holding Hdfc Bank or generate 16.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy97.67%
ValuesDaily Returns

Caterpillar  vs.  Hdfc Bank Ltd

 Performance (%) 
       Timeline  
Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

Hdfc Bank 
Hdfc Bank Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Hdfc Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental indicators, Hdfc Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Hdfc Bank Price Channel

Caterpillar and Hdfc Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Hdfc Bank

The main advantage of trading using opposite Caterpillar and Hdfc Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar 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 Caterpillar and Hdfc Bank 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.

Hdfc Bank

Pair trading matchups for Hdfc Bank

Check out your portfolio center. 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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