Correlation Between ICICI Bank and ILFS Investment

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

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

Diversification Opportunities for ICICI Bank and ILFS Investment

0.31

Correlation Coefficient

ICICI Bank  ILFS Investment

Weak diversification

The 3 months correlation between ICICI and ILFS is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and ILFS Investment Managers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ILFS Investment Managers and ICICI Bank 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 ICICI Bank Limited are associated (or correlated) with ILFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ILFS Investment Managers has no effect on the direction of ICICI Bank i.e., ICICI Bank and ILFS Investment go up and down completely randomly.

Pair Corralation between ICICI Bank and ILFS Investment

Assuming the 90 days trading horizon ICICI Bank Limited is expected to generate 0.48 times more return on investment than ILFS Investment. However, ICICI Bank Limited is 2.07 times less risky than ILFS Investment. It trades about -0.03 of its potential returns per unit of risk. ILFS Investment Managers is currently generating about -0.04 per unit of risk. If you would invest  132,200  in ICICI Bank Limited on September 23, 2024 and sell it today you would lose (3,360) from holding ICICI Bank Limited or give up 2.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

ICICI Bank Limited  vs.  ILFS Investment Managers

ICICI Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICICI Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ICICI Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

ILFS Investment Managers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ILFS Investment Managers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ILFS Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ICICI Bank and ILFS Investment

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

The idea behind ICICI Bank Limited and ILFS Investment Managers 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.