Correlation Between Microsoft and ICICI Bank

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

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

Diversification Opportunities for Microsoft and ICICI Bank

0.73

Correlation Coefficient

Microsoft  ICICI Bank

Poor diversification

The 3 months correlation between Microsoft and ICICI is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and ICICI Bank go up and down completely randomly.

Pair Corralation between Microsoft and ICICI Bank

Given the investment horizon of 90 days Microsoft is expected to generate 7.22 times less return on investment than ICICI Bank. But when comparing it to its historical volatility, Microsoft is 1.1 times less risky than ICICI Bank. It trades about 0.03 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  15,840  in ICICI Bank Limited on October 8, 2024 and sell it today you would earn a total of  3,179  from holding ICICI Bank Limited or generate 20.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.65%
Values	Daily Returns

Microsoft  vs.  ICICI Bank Limited

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

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

ICICI Bank Limited

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, ICICI Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and ICICI Bank

The main advantage of trading using opposite Microsoft and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.