Correlation Between ICICI Bank and PT Bank

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

Diversification Opportunities for ICICI Bank and PT Bank

0.27

Correlation Coefficient

ICICI Bank  PT Bank

Modest diversification

The 3 months correlation between ICICI and BYRA is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of ICICI Bank i.e., ICICI Bank and PT Bank go up and down completely randomly.

Pair Corralation between ICICI Bank and PT Bank

Assuming the 90 days trading horizon ICICI Bank Limited is expected to under-perform the PT Bank. But the stock apears to be less risky and, when comparing its historical volatility, ICICI Bank Limited is 3.89 times less risky than PT Bank. The stock trades about -0.08 of its potential returns per unit of risk. The PT Bank Rakyat is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  24.00  in PT Bank Rakyat on December 2, 2024 and sell it today you would lose (4.00) from holding PT Bank Rakyat or give up 16.67% of portfolio value over 90 days.

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

ICICI Bank Limited  vs.  PT Bank Rakyat

ICICI Bank Limited

Risk-Adjusted Performance

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 latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

PT Bank Rakyat

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PT Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ICICI Bank and PT Bank

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

The idea behind ICICI Bank Limited and PT Bank Rakyat 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.