Correlation Between Indian Oil and Den Networks

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

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

Diversification Opportunities for Indian Oil and Den Networks

0.71

Correlation Coefficient

Indian Oil  Den Networks

Poor diversification

The 3 months correlation between Indian and Den is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Den Networks Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Den Networks Limited and Indian Oil 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 Den Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Den Networks Limited has no effect on the direction of Indian Oil i.e., Indian Oil and Den Networks go up and down completely randomly.

Pair Corralation between Indian Oil and Den Networks

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Den Networks. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.46 times less risky than Den Networks. The stock trades about -0.1 of its potential returns per unit of risk. The Den Networks Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,288  in Den Networks Limited on October 25, 2024 and sell it today you would lose (285.00) from holding Den Networks Limited or give up 6.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Indian Oil  vs.  Den Networks Limited

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Den Networks Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Den Networks Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Den Networks is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Indian Oil and Den Networks

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

The idea behind Indian Oil and Den Networks 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.