Correlation Between City Union and Indian Oil

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

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

Diversification Opportunities for City Union and Indian Oil

0.58

Correlation Coefficient

City Union  Indian Oil

Very weak diversification

The 3 months correlation between City and Indian is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding City Union Bank and Indian Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Oil and City Union 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 City Union Bank are associated (or correlated) with Indian Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Oil has no effect on the direction of City Union i.e., City Union and Indian Oil go up and down completely randomly.

Pair Corralation between City Union and Indian Oil

Assuming the 90 days trading horizon City Union is expected to generate 3.18 times less return on investment than Indian Oil. But when comparing it to its historical volatility, City Union Bank is 1.13 times less risky than Indian Oil. It trades about 0.02 of its potential returns per unit of risk. Indian Oil is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,063  in Indian Oil on October 23, 2024 and sell it today you would earn a total of  5,987  from holding Indian Oil or generate 84.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

City Union Bank  vs.  Indian Oil

City Union Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Union Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, City Union is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Indian Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with City Union and Indian Oil

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

The idea behind City Union Bank and Indian Oil 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.