Correlation Between Reliance Industries and ICICI Bank

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

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

Diversification Opportunities for Reliance Industries and ICICI Bank

0.08

Correlation Coefficient

Reliance Industries  ICICI Bank

Significant diversification

The 3 months correlation between Reliance and ICICI is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited 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 Reliance Industries 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 Reliance Industries Limited 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 Reliance Industries i.e., Reliance Industries and ICICI Bank go up and down completely randomly.

Pair Corralation between Reliance Industries and ICICI Bank

Assuming the 90 days trading horizon Reliance Industries is expected to generate 8.63 times less return on investment than ICICI Bank. But when comparing it to its historical volatility, Reliance Industries Limited is 1.58 times less risky than ICICI Bank. It trades about 0.04 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  122,905  in ICICI Bank Limited on July 2, 2024 and sell it today you would earn a total of  7,755  from holding ICICI Bank Limited or generate 6.31% return on investment over 90 days.

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

Reliance Industries Limited  vs.  ICICI Bank Limited

Reliance Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Reliance Industries 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

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ICICI Bank may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Reliance Industries and ICICI Bank

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