Correlation Between ICICI Bank and Edelweiss Financial

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

Diversification Opportunities for ICICI Bank and Edelweiss Financial

0.46

Correlation Coefficient

ICICI Bank  Edelweiss Financial

Very weak diversification

The 3 months correlation between ICICI and Edelweiss is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Edelweiss Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edelweiss Financial 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 Edelweiss Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edelweiss Financial has no effect on the direction of ICICI Bank i.e., ICICI Bank and Edelweiss Financial go up and down completely randomly.

Pair Corralation between ICICI Bank and Edelweiss Financial

Assuming the 90 days trading horizon ICICI Bank Limited is expected to generate 0.34 times more return on investment than Edelweiss Financial. However, ICICI Bank Limited is 2.94 times less risky than Edelweiss Financial. It trades about -0.02 of its potential returns per unit of risk. Edelweiss Financial Services is currently generating about -0.02 per unit of risk. If you would invest  132,600  in ICICI Bank Limited on September 25, 2024 and sell it today you would lose (2,875) from holding ICICI Bank Limited or give up 2.17% of portfolio value over 90 days.

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

ICICI Bank Limited  vs.  Edelweiss Financial Services

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 basic indicators, ICICI Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Edelweiss Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edelweiss Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Edelweiss Financial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ICICI Bank and Edelweiss Financial

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

The idea behind ICICI Bank Limited and Edelweiss Financial Services 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.