Correlation Between ICICI Bank and Energy Development

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

Diversification Opportunities for ICICI Bank and Energy Development

0.56

Correlation Coefficient

ICICI Bank  Energy Development

Very weak diversification

The 3 months correlation between ICICI and Energy is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Energy Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Development 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 Energy Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Development has no effect on the direction of ICICI Bank i.e., ICICI Bank and Energy Development go up and down completely randomly.

Pair Corralation between ICICI Bank and Energy Development

Assuming the 90 days trading horizon ICICI Bank Limited is expected to under-perform the Energy Development. But the stock apears to be less risky and, when comparing its historical volatility, ICICI Bank Limited is 3.08 times less risky than Energy Development. The stock trades about -0.1 of its potential returns per unit of risk. The Energy Development is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,133  in Energy Development on October 26, 2024 and sell it today you would earn a total of  386.00  from holding Energy Development or generate 18.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

ICICI Bank Limited  vs.  Energy Development

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Energy Development

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Development are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Energy Development exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ICICI Bank and Energy Development

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

The idea behind ICICI Bank Limited and Energy Development 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.