Correlation Between ICICI Bank and Tata Investment

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

Diversification Opportunities for ICICI Bank and Tata Investment

0.56

Correlation Coefficient

ICICI Bank  Tata Investment

Very weak diversification

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

Pair Corralation between ICICI Bank and Tata Investment

Assuming the 90 days trading horizon ICICI Bank Limited is expected to under-perform the Tata Investment. But the stock apears to be less risky and, when comparing its historical volatility, ICICI Bank Limited is 1.94 times less risky than Tata Investment. The stock trades about -0.25 of its potential returns per unit of risk. The Tata Investment is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  652,725  in Tata Investment on October 23, 2024 and sell it today you would lose (25,380) from holding Tata Investment or give up 3.89% 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.  Tata Investment

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Tata Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with ICICI Bank and Tata Investment

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

The idea behind ICICI Bank Limited and Tata Investment 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.