Correlation Between ICICI Bank and Western Digital

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

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

Diversification Opportunities for ICICI Bank and Western Digital

0.7

Correlation Coefficient

ICICI Bank  Western Digital

Poor diversification

The 3 months correlation between ICICI and Western is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and ICICI 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 ICICI Bank Limited are associated (or correlated) with Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of ICICI Bank i.e., ICICI Bank and Western Digital go up and down completely randomly.

Pair Corralation between ICICI Bank and Western Digital

Assuming the 90 days trading horizon ICICI Bank Limited is expected to generate 0.49 times more return on investment than Western Digital. However, ICICI Bank Limited is 2.04 times less risky than Western Digital. It trades about 0.22 of its potential returns per unit of risk. Western Digital is currently generating about 0.04 per unit of risk. If you would invest  15,840  in ICICI Bank Limited on October 8, 2024 and sell it today you would earn a total of  3,179  from holding ICICI Bank Limited or generate 20.07% return on investment over 90 days.

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

ICICI Bank Limited  vs.  Western Digital

ICICI Bank Limited

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, ICICI Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Digital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Western Digital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ICICI Bank and Western Digital

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

The idea behind ICICI Bank Limited and Western Digital 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.