Correlation Between HDFC Bank and JIO Financial

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

Diversification Opportunities for HDFC Bank and JIO Financial

0.85

Correlation Coefficient

HDFC Bank  JIO Financial

Very poor diversification

The 3 months correlation between HDFC and JIO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and JIO Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JIO Financial Services 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 JIO Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JIO Financial Services has no effect on the direction of HDFC Bank i.e., HDFC Bank and JIO Financial go up and down completely randomly.

Pair Corralation between HDFC Bank and JIO Financial

Assuming the 90 days trading horizon HDFC Bank is expected to generate 3.21 times less return on investment than JIO Financial. But when comparing it to its historical volatility, HDFC Bank Limited is 1.78 times less risky than JIO Financial. It trades about 0.1 of its potential returns per unit of risk. JIO Financial Services is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  25,878  in JIO Financial Services on April 24, 2025 and sell it today you would earn a total of  5,202  from holding JIO Financial Services or generate 20.1% return on investment over 90 days.

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

HDFC Bank Limited  vs.  JIO Financial Services

HDFC Bank Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, HDFC Bank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

JIO Financial Services

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JIO Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, JIO Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and JIO Financial

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

The idea behind HDFC Bank Limited and JIO Financial Services 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .