Correlation Between IDBI Bank and AAA Technologies

Can any of the company-specific risk be diversified away by investing in both IDBI Bank and AAA Technologies 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 IDBI Bank and AAA Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IDBI Bank Limited and AAA Technologies Limited, you can compare the effects of market volatilities on IDBI Bank and AAA Technologies 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 IDBI Bank with a short position of AAA Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDBI Bank and AAA Technologies.

Diversification Opportunities for IDBI Bank and AAA Technologies

0.72

Correlation Coefficient

IDBI Bank  AAA Technologies

Poor diversification

The 3 months correlation between IDBI and AAA is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding IDBI Bank Limited and AAA Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAA Technologies and IDBI 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 IDBI Bank Limited are associated (or correlated) with AAA Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAA Technologies has no effect on the direction of IDBI Bank i.e., IDBI Bank and AAA Technologies go up and down completely randomly.

Pair Corralation between IDBI Bank and AAA Technologies

Assuming the 90 days trading horizon IDBI Bank Limited is expected to generate 2.02 times more return on investment than AAA Technologies. However, IDBI Bank is 2.02 times more volatile than AAA Technologies Limited. It trades about 0.07 of its potential returns per unit of risk. AAA Technologies Limited is currently generating about -0.09 per unit of risk. If you would invest  7,768  in IDBI Bank Limited on October 21, 2024 and sell it today you would earn a total of  633.00  from holding IDBI Bank Limited or generate 8.15% return on investment over 90 days.

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

IDBI Bank Limited  vs.  AAA Technologies Limited

IDBI Bank Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IDBI Bank Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IDBI Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

AAA Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAA Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with IDBI Bank and AAA Technologies

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

The idea behind IDBI Bank Limited and AAA Technologies 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.