Correlation Between ICICI Bank and AU Small

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

Diversification Opportunities for ICICI Bank and AU Small

-0.11

Correlation Coefficient

ICICI Bank  AU Small

Good diversification

The 3 months correlation between ICICI and AUBANK is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Bank Limited and AU Small Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AU Small Finance 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 AU Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AU Small Finance has no effect on the direction of ICICI Bank i.e., ICICI Bank and AU Small go up and down completely randomly.

Pair Corralation between ICICI Bank and AU Small

Assuming the 90 days trading horizon ICICI Bank is expected to generate 1.58 times less return on investment than AU Small. But when comparing it to its historical volatility, ICICI Bank Limited is 1.58 times less risky than AU Small. It trades about 0.09 of its potential returns per unit of risk. AU Small Finance is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  67,432  in AU Small Finance on April 25, 2025 and sell it today you would earn a total of  6,243  from holding AU Small Finance or generate 9.26% return on investment over 90 days.

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

ICICI Bank Limited  vs.  AU Small Finance

ICICI Bank Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ICICI Bank Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ICICI Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

AU Small Finance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AU Small Finance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AU Small may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with ICICI Bank and AU Small

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

The idea behind ICICI Bank Limited and AU Small Finance 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.