Correlation Between Indian Oil and Garware Technical

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

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

Diversification Opportunities for Indian Oil and Garware Technical

-0.55

Correlation Coefficient

Indian Oil  Garware Technical

Excellent diversification

The 3 months correlation between Indian and Garware is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Garware Technical Fibres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garware Technical Fibres 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 Garware Technical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garware Technical Fibres has no effect on the direction of Indian Oil i.e., Indian Oil and Garware Technical go up and down completely randomly.

Pair Corralation between Indian Oil and Garware Technical

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Garware Technical. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 2.33 times less risky than Garware Technical. The stock trades about -0.17 of its potential returns per unit of risk. The Garware Technical Fibres is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  386,680  in Garware Technical Fibres on October 5, 2024 and sell it today you would earn a total of  78,415  from holding Garware Technical Fibres or generate 20.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Indian Oil  vs.  Garware Technical Fibres

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.

Garware Technical Fibres

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garware Technical Fibres are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Garware Technical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Oil and Garware Technical

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

The idea behind Indian Oil and Garware Technical Fibres 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.