Correlation Between Indian Overseas and Ortel Communications

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

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

Diversification Opportunities for Indian Overseas and Ortel Communications

-0.12

Correlation Coefficient

Indian Overseas  Ortel Communications

Good diversification

The 3 months correlation between Indian and Ortel is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Indian Overseas Bank and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and Indian Overseas 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 Indian Overseas Bank are associated (or correlated) with Ortel Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ortel Communications has no effect on the direction of Indian Overseas i.e., Indian Overseas and Ortel Communications go up and down completely randomly.

Pair Corralation between Indian Overseas and Ortel Communications

Assuming the 90 days trading horizon Indian Overseas is expected to generate 5.37 times less return on investment than Ortel Communications. But when comparing it to its historical volatility, Indian Overseas Bank is 1.05 times less risky than Ortel Communications. It trades about 0.09 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  186.00  in Ortel Communications Limited on September 23, 2024 and sell it today you would earn a total of  49.00  from holding Ortel Communications Limited or generate 26.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Indian Overseas Bank  vs.  Ortel Communications Limited

Indian Overseas Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ortel Communications

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ortel Communications Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Ortel Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Overseas and Ortel Communications

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

The idea behind Indian Overseas Bank and Ortel Communications 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.