Correlation Between Enterprise Bancorp and HDFC Bank

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

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

Diversification Opportunities for Enterprise Bancorp and HDFC Bank

-0.68

Correlation Coefficient

Enterprise Bancorp  HDFC Bank

Excellent diversification

The 3 months correlation between Enterprise and HDFC is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp 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 Enterprise Bancorp 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 Enterprise Bancorp 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 Enterprise Bancorp i.e., Enterprise Bancorp and HDFC Bank go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and HDFC Bank

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 1.93 times more return on investment than HDFC Bank. However, Enterprise Bancorp is 1.93 times more volatile than HDFC Bank Limited. It trades about -0.01 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about -0.05 per unit of risk. If you would invest  2,495  in Enterprise Bancorp on February 4, 2024 and sell it today you would lose (24.00) from holding Enterprise Bancorp or give up 0.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Enterprise Bancorp  vs.  HDFC Bank Limited

Enterprise Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enterprise Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

HDFC Bank Limited

Risk-Adjusted Performance

5 of 100

Modest

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Enterprise Bancorp and HDFC Bank

The main advantage of trading using opposite Enterprise Bancorp and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise Bancorp 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 Enterprise Bancorp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.