Correlation Between ICICI Bank and US Bancorp

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

Diversification Opportunities for ICICI Bank and US Bancorp

0.49

Correlation Coefficient

ICICI Bank  US Bancorp

Very weak diversification

The 3 months correlation between ICICI and USB is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of ICICI Bank i.e., ICICI Bank and US Bancorp go up and down completely randomly.

Pair Corralation between ICICI Bank and US Bancorp

Considering the 90-day investment horizon ICICI Bank is expected to generate 2.14 times less return on investment than US Bancorp. But when comparing it to its historical volatility, ICICI Bank Limited is 1.64 times less risky than US Bancorp. It trades about 0.06 of its potential returns per unit of risk. US Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,156  in US Bancorp on January 25, 2024 and sell it today you would earn a total of  1,005  from holding US Bancorp or generate 31.84% return on investment over 90 days.

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

ICICI Bank Limited  vs.  US Bancorp

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.

US Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ICICI Bank and US Bancorp

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

The idea behind ICICI Bank Limited and US Bancorp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.