Correlation Between Bharti Airtel and ICICI Bank

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

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

Diversification Opportunities for Bharti Airtel and ICICI Bank

0.33

Correlation Coefficient

Bharti Airtel  ICICI Bank

Weak diversification

The 3 months correlation between Bharti and ICICI is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Bharti Airtel Limited 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 Bharti Airtel 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 Bharti Airtel Limited 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 Bharti Airtel i.e., Bharti Airtel and ICICI Bank go up and down completely randomly.

Pair Corralation between Bharti Airtel and ICICI Bank

Assuming the 90 days trading horizon Bharti Airtel is expected to generate 1.1 times less return on investment than ICICI Bank. But when comparing it to its historical volatility, Bharti Airtel Limited is 1.03 times less risky than ICICI Bank. It trades about 0.06 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  124,700  in ICICI Bank Limited on September 3, 2024 and sell it today you would earn a total of  5,765  from holding ICICI Bank Limited or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Bharti Airtel Limited  vs.  ICICI Bank Limited

Bharti Airtel Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bharti Airtel Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bharti Airtel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

ICICI Bank Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ICICI Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bharti Airtel and ICICI Bank

The main advantage of trading using opposite Bharti Airtel and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bharti Airtel 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 Bharti Airtel Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.