Correlation Between Mitsubishi UFJ and ICICI Bank

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

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

Diversification Opportunities for Mitsubishi UFJ and ICICI Bank

-0.37

Correlation Coefficient

Mitsubishi UFJ  ICICI Bank

Very good diversification

The 3 months correlation between Mitsubishi and ICICI is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi UFJ Financial and ICICI Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICICI Bank Limited and Mitsubishi UFJ 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 Mitsubishi UFJ Financial are associated (or correlated) with ICICI Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICICI Bank Limited has no effect on the direction of Mitsubishi UFJ i.e., Mitsubishi UFJ and ICICI Bank go up and down completely randomly.

Pair Corralation between Mitsubishi UFJ and ICICI Bank

Assuming the 90 days trading horizon Mitsubishi UFJ Financial is expected to generate 1.41 times more return on investment than ICICI Bank. However, Mitsubishi UFJ is 1.41 times more volatile than ICICI Bank Limited. It trades about 0.11 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about -0.08 per unit of risk. If you would invest  7,203  in Mitsubishi UFJ Financial on December 26, 2024 and sell it today you would earn a total of  1,077  from holding Mitsubishi UFJ Financial or generate 14.95% return on investment over 90 days.

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

Mitsubishi UFJ Financial  vs.  ICICI Bank Limited

Mitsubishi UFJ Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mitsubishi UFJ sustained solid returns over the last few months and may actually be approaching a breakup point.

ICICI Bank Limited

Risk-Adjusted Performance

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 fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Mitsubishi UFJ and ICICI Bank

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

The idea behind Mitsubishi UFJ Financial and ICICI Bank 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.