Correlation Between Indian Overseas and Tech Mahindra

Can any of the company-specific risk be diversified away by investing in both Indian Overseas and Tech Mahindra 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 Tech Mahindra 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 Tech Mahindra Limited, you can compare the effects of market volatilities on Indian Overseas and Tech Mahindra 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 Tech Mahindra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Overseas and Tech Mahindra.

Diversification Opportunities for Indian Overseas and Tech Mahindra

0.67

Correlation Coefficient

Indian Overseas  Tech Mahindra

Poor diversification

The 3 months correlation between Indian and Tech is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Indian Overseas Bank and Tech Mahindra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Mahindra Limited 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 Tech Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Mahindra Limited has no effect on the direction of Indian Overseas i.e., Indian Overseas and Tech Mahindra go up and down completely randomly.

Pair Corralation between Indian Overseas and Tech Mahindra

Assuming the 90 days trading horizon Indian Overseas Bank is expected to under-perform the Tech Mahindra. In addition to that, Indian Overseas is 1.94 times more volatile than Tech Mahindra Limited. It trades about -0.16 of its total potential returns per unit of risk. Tech Mahindra Limited is currently generating about -0.15 per unit of volatility. If you would invest  175,960  in Tech Mahindra Limited on December 4, 2024 and sell it today you would lose (26,655) from holding Tech Mahindra Limited or give up 15.15% of portfolio value over 90 days.

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

Indian Overseas Bank  vs.  Tech Mahindra Limited

Indian Overseas Bank

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tech Mahindra Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tech Mahindra Limited 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 fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Indian Overseas and Tech Mahindra

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

The idea behind Indian Overseas Bank and Tech Mahindra 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.