Correlation Between ICICI Bank and Piramal Enterprises

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

Diversification Opportunities for ICICI Bank and Piramal Enterprises

0.8

Correlation Coefficient

ICICI Bank  Piramal Enterprises

Very poor diversification

The 3 months correlation between ICICI and Piramal is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Piramal Enterprises Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piramal Enterprises 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 Piramal Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piramal Enterprises has no effect on the direction of ICICI Bank i.e., ICICI Bank and Piramal Enterprises go up and down completely randomly.

Pair Corralation between ICICI Bank and Piramal Enterprises

Assuming the 90 days trading horizon ICICI Bank Limited is expected to under-perform the Piramal Enterprises. But the stock apears to be less risky and, when comparing its historical volatility, ICICI Bank Limited is 2.11 times less risky than Piramal Enterprises. The stock trades about -0.1 of its potential returns per unit of risk. The Piramal Enterprises Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  107,515  in Piramal Enterprises Limited on October 26, 2024 and sell it today you would lose (6,810) from holding Piramal Enterprises Limited or give up 6.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

ICICI Bank Limited  vs.  Piramal Enterprises Limited

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.

Piramal Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Piramal Enterprises Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Piramal Enterprises is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ICICI Bank and Piramal Enterprises

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

The idea behind ICICI Bank Limited and Piramal Enterprises Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.