Correlation Between HDFC Bank and CSB Bank

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

Diversification Opportunities for HDFC Bank and CSB Bank

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between HDFC and CSB is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and CSB Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSB Bank Limited 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 CSB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSB Bank Limited has no effect on the direction of HDFC Bank i.e., HDFC Bank and CSB Bank go up and down completely randomly.

Pair Corralation between HDFC Bank and CSB Bank

Assuming the 90 days trading horizon HDFC Bank is expected to generate 2.53 times less return on investment than CSB Bank. But when comparing it to its historical volatility, HDFC Bank Limited is 1.53 times less risky than CSB Bank. It trades about 0.11 of its potential returns per unit of risk. CSB Bank Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  36,300  in CSB Bank Limited on April 24, 2025 and sell it today you would earn a total of  6,580  from holding CSB Bank Limited or generate 18.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

HDFC Bank Limited  vs.  CSB Bank Limited

 Performance 
       Timeline  
HDFC Bank Limited 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, HDFC Bank may actually be approaching a critical reversion point that can send shares even higher in August 2025.
CSB Bank Limited 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in CSB Bank Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, CSB Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

HDFC Bank and CSB Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HDFC Bank and CSB Bank

The main advantage of trading using opposite HDFC Bank and CSB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, CSB 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 CSB Bank will offset losses from the drop in CSB Bank's long position.
The idea behind HDFC Bank Limited and CSB 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.
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 the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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