Correlation Between ICICI Bank and Tata Consultancy

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

Diversification Opportunities for ICICI Bank and Tata Consultancy

0.58

Correlation Coefficient

ICICI Bank  Tata Consultancy

Very weak diversification

The 3 months correlation between ICICI and Tata is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Tata Consultancy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Consultancy Services 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 Consultancy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Consultancy Services has no effect on the direction of ICICI Bank i.e., ICICI Bank and Tata Consultancy go up and down completely randomly.

Pair Corralation between ICICI Bank and Tata Consultancy

Assuming the 90 days trading horizon ICICI Bank Limited is expected to under-perform the Tata Consultancy. But the stock apears to be less risky and, when comparing its historical volatility, ICICI Bank Limited is 1.39 times less risky than Tata Consultancy. The stock trades about -0.03 of its potential returns per unit of risk. The Tata Consultancy Services is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  400,613  in Tata Consultancy Services on October 20, 2024 and sell it today you would earn a total of  11,817  from holding Tata Consultancy Services or generate 2.95% return on investment over 90 days.

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

ICICI Bank Limited  vs.  Tata Consultancy 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Tata Consultancy Services

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Consultancy Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ICICI Bank and Tata Consultancy

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

The idea behind ICICI Bank Limited and Tata Consultancy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..