Correlation Between HDFC Bank and Cincinnati Financial

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

Diversification Opportunities for HDFC Bank and Cincinnati Financial

-0.3

Correlation Coefficient

HDFC Bank  Cincinnati Financial

Very good diversification

The 3 months correlation between HDFC and Cincinnati is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial 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 Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial has no effect on the direction of HDFC Bank i.e., HDFC Bank and Cincinnati Financial go up and down completely randomly.

Pair Corralation between HDFC Bank and Cincinnati Financial

Assuming the 90 days trading horizon HDFC Bank is expected to generate 10.0 times less return on investment than Cincinnati Financial. In addition to that, HDFC Bank is 2.85 times more volatile than Cincinnati Financial. It trades about 0.0 of its total potential returns per unit of risk. Cincinnati Financial is currently generating about 0.13 per unit of volatility. If you would invest  40,499  in Cincinnati Financial on April 20, 2025 and sell it today you would earn a total of  955.00  from holding Cincinnati Financial or generate 2.36% 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.  Cincinnati Financial

HDFC Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days HDFC Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, HDFC Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Cincinnati Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cincinnati Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HDFC Bank and Cincinnati Financial

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

The idea behind HDFC Bank Limited and Cincinnati Financial 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.