Correlation Between Indian OilLimited and Choice International

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

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

Diversification Opportunities for Indian OilLimited and Choice International

0.75

Correlation Coefficient

Indian OilLimited  Choice International

Poor diversification

The 3 months correlation between Indian and Choice is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Choice International Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice International and Indian OilLimited 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 Oil are associated (or correlated) with Choice International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice International has no effect on the direction of Indian OilLimited i.e., Indian OilLimited and Choice International go up and down completely randomly.

Pair Corralation between Indian OilLimited and Choice International

Assuming the 90 days trading horizon Indian Oil is expected to generate 1.0 times more return on investment than Choice International. However, Indian OilLimited is 1.0 times more volatile than Choice International Limited. It trades about -0.03 of its potential returns per unit of risk. Choice International Limited is currently generating about -0.08 per unit of risk. If you would invest  13,640  in Indian Oil on December 27, 2024 and sell it today you would lose (731.00) from holding Indian Oil or give up 5.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Indian Oil  vs.  Choice International Limited

Indian OilLimited

Risk-Adjusted Performance

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 rather sound technical and fundamental indicators, Indian OilLimited is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Choice International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Choice International Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Indian OilLimited and Choice International

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

The idea behind Indian Oil and Choice International 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 Global Correlations module to find global opportunities by holding instruments from different markets.