Correlation Between CHINA HUARONG and ICICI Bank

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

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and ICICI Bank Limited, you can compare the effects of market volatilities on CHINA HUARONG 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 CHINA HUARONG with a short position of ICICI Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and ICICI Bank.

Diversification Opportunities for CHINA HUARONG and ICICI Bank

-0.36

Correlation Coefficient

CHINA HUARONG  ICICI Bank

Very good diversification

The 3 months correlation between CHINA and ICICI is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 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 CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 CHINA HUARONG i.e., CHINA HUARONG and ICICI Bank go up and down completely randomly.

Pair Corralation between CHINA HUARONG and ICICI Bank

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 22.09 times more return on investment than ICICI Bank. However, CHINA HUARONG is 22.09 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 0.05 per unit of risk. If you would invest  0.50  in CHINA HUARONG ENERHD 50 on September 23, 2024 and sell it today you would lose (0.35) from holding CHINA HUARONG ENERHD 50 or give up 70.0% of portfolio value over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  ICICI Bank Limited

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

ICICI Bank Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, ICICI Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CHINA HUARONG and ICICI Bank

The main advantage of trading using opposite CHINA HUARONG and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.