Correlation Between ICICI Bank and Hang Seng

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

Diversification Opportunities for ICICI Bank and Hang Seng

0.68

Correlation Coefficient

ICICI Bank  Hang Seng

Poor diversification

The 3 months correlation between ICICI and Hang is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Hang Seng Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hang Seng Bank 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 Hang Seng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hang Seng Bank has no effect on the direction of ICICI Bank i.e., ICICI Bank and Hang Seng go up and down completely randomly.

Pair Corralation between ICICI Bank and Hang Seng

Assuming the 90 days trading horizon ICICI Bank is expected to generate 2.15 times less return on investment than Hang Seng. But when comparing it to its historical volatility, ICICI Bank Limited is 1.53 times less risky than Hang Seng. It trades about 0.05 of its potential returns per unit of risk. Hang Seng Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  494.00  in Hang Seng Bank on October 10, 2024 and sell it today you would earn a total of  646.00  from holding Hang Seng Bank or generate 130.77% 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.  Hang Seng Bank

ICICI Bank Limited

Risk-Adjusted Performance

4 of 100

Insignificant

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

Hang Seng Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Seng Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hang Seng reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ICICI Bank and Hang Seng

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

The idea behind ICICI Bank Limited and Hang Seng Bank 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.