Correlation Between ICICI Bank and Power Finance

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

Diversification Opportunities for ICICI Bank and Power Finance

-0.32

Correlation Coefficient

ICICI Bank  Power Finance

Very good diversification

The 3 months correlation between ICICI and Power is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of ICICI Bank i.e., ICICI Bank and Power Finance go up and down completely randomly.

Pair Corralation between ICICI Bank and Power Finance

Assuming the 90 days trading horizon ICICI Bank Limited is expected to generate 0.53 times more return on investment than Power Finance. However, ICICI Bank Limited is 1.87 times less risky than Power Finance. It trades about 0.07 of its potential returns per unit of risk. Power Finance is currently generating about -0.04 per unit of risk. If you would invest  122,905  in ICICI Bank Limited on September 2, 2024 and sell it today you would earn a total of  7,105  from holding ICICI Bank Limited or generate 5.78% return on investment over 90 days.

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

ICICI Bank Limited  vs.  Power Finance

ICICI Bank Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Power Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with ICICI Bank and Power Finance

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

The idea behind ICICI Bank Limited and Power Finance 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.