Correlation Between Indian Oil and EIH Associated

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

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

Diversification Opportunities for Indian Oil and EIH Associated

-0.23

Correlation Coefficient

Indian Oil  EIH Associated

Very good diversification

The 3 months correlation between Indian and EIH is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and EIH Associated Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EIH Associated Hotels 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 EIH Associated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EIH Associated Hotels has no effect on the direction of Indian Oil i.e., Indian Oil and EIH Associated go up and down completely randomly.

Pair Corralation between Indian Oil and EIH Associated

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the EIH Associated. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 2.18 times less risky than EIH Associated. The stock trades about -0.03 of its potential returns per unit of risk. The EIH Associated Hotels is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  40,480  in EIH Associated Hotels on October 6, 2024 and sell it today you would earn a total of  3,390  from holding EIH Associated Hotels or generate 8.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Indian Oil  vs.  EIH Associated Hotels

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 uncertain 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.

EIH Associated Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EIH Associated Hotels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, EIH Associated unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Oil and EIH Associated

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

The idea behind Indian Oil and EIH Associated Hotels 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.