Correlation Between Indian Oil and Hindustan Construction

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

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

Diversification Opportunities for Indian Oil and Hindustan Construction

0.97

Correlation Coefficient

Indian Oil  Hindustan Construction

Almost no diversification

The 3 months correlation between Indian and Hindustan is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction 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 Hindustan Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Construction has no effect on the direction of Indian Oil i.e., Indian Oil and Hindustan Construction go up and down completely randomly.

Pair Corralation between Indian Oil and Hindustan Construction

Assuming the 90 days trading horizon Indian Oil is expected to generate 0.48 times more return on investment than Hindustan Construction. However, Indian Oil is 2.08 times less risky than Hindustan Construction. It trades about -0.16 of its potential returns per unit of risk. Hindustan Construction is currently generating about -0.23 per unit of risk. If you would invest  13,799  in Indian Oil on November 30, 2024 and sell it today you would lose (2,450) from holding Indian Oil or give up 17.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Indian Oil  vs.  Hindustan Construction

Indian Oil

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Hindustan Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hindustan Construction 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 March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Indian Oil and Hindustan Construction

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

The idea behind Indian Oil and Hindustan Construction 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.