Correlation Between Basic Materials and ICICI Bank
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and ICICI Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and ICICI Bank Limited, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of ICICI Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and ICICI Bank.
Diversification Opportunities for Basic Materials and ICICI Bank
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Basic and ICICI is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials 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 Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and ICICI Bank go up and down completely randomly.
Pair Corralation between Basic Materials and ICICI Bank
Assuming the 90 days trading horizon Basic Materials is expected to under-perform the ICICI Bank. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 1.45 times less risky than ICICI Bank. The index trades about -0.58 of its potential returns per unit of risk. The ICICI Bank Limited is currently generating about -0.34 of returns per unit of risk over similar time horizon. If you would invest 19,133 in ICICI Bank Limited on October 15, 2024 and sell it today you would lose (1,588) from holding ICICI Bank Limited or give up 8.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials vs. ICICI Bank Limited
Performance |
| Timeline |
Basic Materials and ICICI Bank Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
ICICI Bank Limited
Pair trading matchups for ICICI Bank
Pair Trading with Basic Materials and ICICI Bank
The main advantage of trading using opposite Basic Materials and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. DENTSPLY SIRONA | Basic Materials vs. Monster Beverage | Basic Materials vs. STMicroelectronics NV | Basic Materials vs. Unifique Telecomunicaes SA |
| ICICI Bank vs. Taiwan Semiconductor Manufacturing | ICICI Bank vs. Apple Inc | ICICI Bank vs. Alibaba Group Holding | ICICI Bank vs. Banco Santander Chile |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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