Correlation Between HDFC Bank and Power Finance

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

Diversification Opportunities for HDFC Bank and Power Finance

0.57

Correlation Coefficient

HDFC Bank  Power Finance

Very weak diversification

The 3 months correlation between HDFC and Power is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of HDFC Bank i.e., HDFC Bank and Power Finance go up and down completely randomly.

Pair Corralation between HDFC Bank and Power Finance

Assuming the 90 days trading horizon HDFC Bank Limited is expected to generate 0.53 times more return on investment than Power Finance. However, HDFC Bank Limited is 1.89 times less risky than Power Finance. It trades about 0.12 of its potential returns per unit of risk. Power Finance is currently generating about 0.02 per unit of risk. If you would invest  189,040  in HDFC Bank Limited on April 25, 2025 and sell it today you would earn a total of  13,390  from holding HDFC Bank Limited or generate 7.08% return on investment over 90 days.

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

HDFC Bank Limited  vs.  Power Finance

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 9 (%) 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.

Power Finance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Finance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Power Finance is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HDFC Bank and Power Finance

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

The idea behind HDFC Bank Limited and Power Finance 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.