Correlation Between Tata Consultancy and ICICI Bank

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

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

Diversification Opportunities for Tata Consultancy and ICICI Bank

0.6

Correlation Coefficient

Tata Consultancy  ICICI Bank

Poor diversification

The 3 months correlation between Tata and ICICI is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services 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 Tata Consultancy 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 Tata Consultancy Services 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 Tata Consultancy i.e., Tata Consultancy and ICICI Bank go up and down completely randomly.

Pair Corralation between Tata Consultancy and ICICI Bank

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the ICICI Bank. In addition to that, Tata Consultancy is 1.08 times more volatile than ICICI Bank Limited. It trades about -0.02 of its total potential returns per unit of risk. ICICI Bank Limited is currently generating about -0.02 per unit of volatility. If you would invest  132,000  in ICICI Bank Limited on September 24, 2024 and sell it today you would lose (2,320) from holding ICICI Bank Limited or give up 1.76% of portfolio value over 90 days.

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

Tata Consultancy Services  vs.  ICICI Bank Limited

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

Pair Trading with Tata Consultancy and ICICI Bank

The main advantage of trading using opposite Tata Consultancy and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Consultancy 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 Tata Consultancy Services 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.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.