Correlation Between Visa and ICICI Bank

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

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

Diversification Opportunities for Visa and ICICI Bank

0.79

Correlation Coefficient

Visa  ICICI Bank

Poor diversification

The 3 months correlation between Visa and ICICI is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and ICICI Bank go up and down completely randomly.

Pair Corralation between Visa and ICICI Bank

Taking into account the 90-day investment horizon Visa is expected to generate 1.18 times less return on investment than ICICI Bank. But when comparing it to its historical volatility, Visa Class A is 1.68 times less risky than ICICI Bank. It trades about 0.07 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,954  in ICICI Bank Limited on October 11, 2024 and sell it today you would earn a total of  886.00  from holding ICICI Bank Limited or generate 45.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.0%
Values	Daily Returns

Visa Class A  vs.  ICICI Bank Limited

Visa Class A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

ICICI Bank Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental drivers, ICICI Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Visa and ICICI Bank

The main advantage of trading using opposite Visa and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.