Correlation Between Coal India and Oil Natural

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

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

Diversification Opportunities for Coal India and Oil Natural

0.45

Correlation Coefficient

Coal India  Oil Natural

Very weak diversification

The 3 months correlation between Coal and Oil is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Coal India Limited and Oil Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Natural Gas and Coal India 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 Coal India Limited are associated (or correlated) with Oil Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Natural Gas has no effect on the direction of Coal India i.e., Coal India and Oil Natural go up and down completely randomly.

Pair Corralation between Coal India and Oil Natural

Assuming the 90 days trading horizon Coal India Limited is expected to under-perform the Oil Natural. But the stock apears to be less risky and, when comparing its historical volatility, Coal India Limited is 1.18 times less risky than Oil Natural. The stock trades about -0.12 of its potential returns per unit of risk. The Oil Natural Gas is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  25,169  in Oil Natural Gas on November 29, 2024 and sell it today you would lose (1,869) from holding Oil Natural Gas or give up 7.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Coal India Limited  vs.  Oil Natural Gas

Coal India Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coal India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Oil Natural Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oil Natural Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Coal India and Oil Natural

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

The idea behind Coal India Limited and Oil Natural Gas 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.