Correlation Between China Merchants and ICICI Bank

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

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

Diversification Opportunities for China Merchants and ICICI Bank

0.86

Correlation Coefficient

China Merchants  ICICI Bank

Very poor diversification

The 3 months correlation between China and ICICI is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank 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 China Merchants 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 China Merchants Bank 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 China Merchants i.e., China Merchants and ICICI Bank go up and down completely randomly.

Pair Corralation between China Merchants and ICICI Bank

Assuming the 90 days horizon China Merchants Bank is expected to generate 0.4 times more return on investment than ICICI Bank. However, China Merchants Bank is 2.5 times less risky than ICICI Bank. It trades about 0.22 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about 0.05 per unit of risk. If you would invest  393.00  in China Merchants Bank on January 26, 2024 and sell it today you would earn a total of  8.00  from holding China Merchants Bank or generate 2.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

China Merchants Bank  vs.  ICICI Bank Limited

China Merchants Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

ICICI Bank Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental drivers, ICICI Bank may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with China Merchants and ICICI Bank

The main advantage of trading using opposite China Merchants and ICICI Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants 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 China Merchants Bank 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.