Correlation Between Wipro and IDBI Bank

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

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

Diversification Opportunities for Wipro and IDBI Bank

-0.14

Correlation Coefficient

Wipro  IDBI Bank

Good diversification

The 3 months correlation between Wipro and IDBI is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Wipro Limited and IDBI Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDBI Bank Limited and Wipro 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 Wipro Limited are associated (or correlated) with IDBI Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDBI Bank Limited has no effect on the direction of Wipro i.e., Wipro and IDBI Bank go up and down completely randomly.

Pair Corralation between Wipro and IDBI Bank

Assuming the 90 days trading horizon Wipro Limited is expected to under-perform the IDBI Bank. But the stock apears to be less risky and, when comparing its historical volatility, Wipro Limited is 3.5 times less risky than IDBI Bank. The stock trades about -0.26 of its potential returns per unit of risk. The IDBI Bank Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,603  in IDBI Bank Limited on October 21, 2024 and sell it today you would earn a total of  798.00  from holding IDBI Bank Limited or generate 10.5% return on investment over 90 days.

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

Wipro Limited  vs.  IDBI Bank Limited

Wipro Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Wipro displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Wipro and IDBI Bank

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

The idea behind Wipro Limited and IDBI 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.