Correlation Between CSB Bank and RBL Bank

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

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

Diversification Opportunities for CSB Bank and RBL Bank

0.94

Correlation Coefficient

CSB Bank  RBL Bank

Almost no diversification

The 3 months correlation between CSB and RBL is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding CSB Bank Limited and RBL Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBL Bank Limited and CSB 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 CSB Bank Limited are associated (or correlated) with RBL Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBL Bank Limited has no effect on the direction of CSB Bank i.e., CSB Bank and RBL Bank go up and down completely randomly.

Pair Corralation between CSB Bank and RBL Bank

Assuming the 90 days trading horizon CSB Bank is expected to generate 1.49 times less return on investment than RBL Bank. But when comparing it to its historical volatility, CSB Bank Limited is 1.65 times less risky than RBL Bank. It trades about 0.38 of its potential returns per unit of risk. RBL Bank Limited is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  22,384  in RBL Bank Limited on April 20, 2025 and sell it today you would earn a total of  3,930  from holding RBL Bank Limited or generate 17.56% return on investment over 90 days.

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

CSB Bank Limited  vs.  RBL Bank Limited

CSB Bank Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CSB Bank Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, CSB Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

RBL Bank Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBL Bank Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, RBL Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CSB Bank and RBL Bank

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

The idea behind CSB Bank Limited and RBL 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.