Correlation Between Discover Financial and ICICI Bank

Can any of the company-specific risk be diversified away by investing in both Discover Financial and ICICI 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 Discover Financial and ICICI Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Discover Financial Services and ICICI Bank Limited, you can compare the effects of market volatilities on Discover Financial and ICICI 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 Discover Financial with a short position of ICICI Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and ICICI Bank.

Diversification Opportunities for Discover Financial and ICICI Bank

-0.23

Correlation Coefficient

Discover Financial  ICICI Bank

Very good diversification

The 3 months correlation between Discover and ICICI is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and ICICI Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICICI Bank Limited and Discover Financial 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 Discover Financial Services are associated (or correlated) with ICICI Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICICI Bank Limited has no effect on the direction of Discover Financial i.e., Discover Financial and ICICI Bank go up and down completely randomly.

Pair Corralation between Discover Financial and ICICI Bank

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 3.47 times more return on investment than ICICI Bank. However, Discover Financial is 3.47 times more volatile than ICICI Bank Limited. It trades about 0.36 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about -0.47 per unit of risk. If you would invest  41,833  in Discover Financial Services on October 26, 2024 and sell it today you would earn a total of  17,891  from holding Discover Financial Services or generate 42.77% return on investment over 90 days.

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

Discover Financial Services  vs.  ICICI Bank Limited

Discover Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Discover Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

ICICI Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Discover Financial and ICICI Bank

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

The idea behind Discover Financial Services and ICICI 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.