Correlation Between Indian Oil and Digjam

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

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

Diversification Opportunities for Indian Oil and Digjam

0.38

Correlation Coefficient

Indian Oil  Digjam

Weak diversification

The 3 months correlation between Indian and Digjam is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Digjam Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digjam 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 Digjam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digjam Limited has no effect on the direction of Indian Oil i.e., Indian Oil and Digjam go up and down completely randomly.

Pair Corralation between Indian Oil and Digjam

Assuming the 90 days trading horizon Indian Oil is expected to generate 0.99 times more return on investment than Digjam. However, Indian Oil is 1.01 times less risky than Digjam. It trades about 0.07 of its potential returns per unit of risk. Digjam Limited is currently generating about -0.04 per unit of risk. If you would invest  7,275  in Indian Oil on October 4, 2024 and sell it today you would earn a total of  6,369  from holding Indian Oil or generate 87.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.18%
Values	Daily Returns

Indian Oil  vs.  Digjam 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 weak 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.

Digjam Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digjam Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Indian Oil and Digjam

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

The idea behind Indian Oil and Digjam 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.