Correlation Between State Bank and Axis Bank

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

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

Diversification Opportunities for State Bank and Axis Bank

0.62

Correlation Coefficient

State Bank  Axis Bank

Poor diversification

The 3 months correlation between State and Axis is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Axis Bank Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axis Bank and State 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 State Bank of are associated (or correlated) with Axis Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axis Bank has no effect on the direction of State Bank i.e., State Bank and Axis Bank go up and down completely randomly.

Pair Corralation between State Bank and Axis Bank

Assuming the 90 days trading horizon State Bank of is expected to under-perform the Axis Bank. But the stock apears to be less risky and, when comparing its historical volatility, State Bank of is 1.07 times less risky than Axis Bank. The stock trades about -0.02 of its potential returns per unit of risk. The Axis Bank Ltd is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,200  in Axis Bank Ltd on December 30, 2024 and sell it today you would earn a total of  140.00  from holding Axis Bank Ltd or generate 2.26% return on investment over 90 days.

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

State Bank of  vs.  Axis Bank Ltd

State Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Axis Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Axis Bank Ltd 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, Axis Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with State Bank and Axis Bank

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

The idea behind State Bank of and Axis Bank Ltd 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.