Correlation Between HDFC Life and Power Finance

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

Diversification Opportunities for HDFC Life and Power Finance

0.06

Correlation Coefficient

HDFC Life  Power Finance

Significant diversification

The 3 months correlation between HDFC and Power is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance and HDFC Life 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 Life Insurance 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 Life i.e., HDFC Life and Power Finance go up and down completely randomly.

Pair Corralation between HDFC Life and Power Finance

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 0.67 times more return on investment than Power Finance. However, HDFC Life Insurance is 1.48 times less risky than Power Finance. It trades about 0.05 of its potential returns per unit of risk. Power Finance is currently generating about -0.02 per unit of risk. If you would invest  71,068  in HDFC Life Insurance on April 22, 2025 and sell it today you would earn a total of  2,882  from holding HDFC Life Insurance or generate 4.06% return on investment over 90 days.

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

HDFC Life Insurance  vs.  Power Finance

HDFC Life Insurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Life Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, HDFC Life is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Power Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power Finance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HDFC Life and Power Finance

The main advantage of trading using opposite HDFC Life and Power Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Life 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 Life Insurance 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.