Correlation Between ICICI Bank and Nippon Life

Can any of the company-specific risk be diversified away by investing in both ICICI Bank and Nippon Life 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 Nippon Life 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 Nippon Life India, you can compare the effects of market volatilities on ICICI Bank and Nippon Life 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 Nippon Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of ICICI Bank and Nippon Life.

Diversification Opportunities for ICICI Bank and Nippon Life

0.52

Correlation Coefficient

ICICI Bank  Nippon Life

Very weak diversification

The 3 months correlation between ICICI and Nippon is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and Nippon Life India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Life India 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 Nippon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Life India has no effect on the direction of ICICI Bank i.e., ICICI Bank and Nippon Life go up and down completely randomly.

Pair Corralation between ICICI Bank and Nippon Life

Assuming the 90 days trading horizon ICICI Bank Limited is expected to under-perform the Nippon Life. But the stock apears to be less risky and, when comparing its historical volatility, ICICI Bank Limited is 2.21 times less risky than Nippon Life. The stock trades about -0.03 of its potential returns per unit of risk. The Nippon Life India is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  68,666  in Nippon Life India on September 22, 2024 and sell it today you would earn a total of  6,359  from holding Nippon Life India or generate 9.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

ICICI Bank Limited  vs.  Nippon Life India

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Nippon Life India

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Nippon Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ICICI Bank and Nippon Life

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

The idea behind ICICI Bank Limited and Nippon Life India 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.