Correlation Between Indian OilLimited and Indian Overseas

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

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

Diversification Opportunities for Indian OilLimited and Indian Overseas

0.47

Correlation Coefficient

Indian OilLimited  Indian Overseas

Very weak diversification

The 3 months correlation between Indian and Indian is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Indian Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Overseas Bank and Indian OilLimited 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 Indian Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Overseas Bank has no effect on the direction of Indian OilLimited i.e., Indian OilLimited and Indian Overseas go up and down completely randomly.

Pair Corralation between Indian OilLimited and Indian Overseas

Assuming the 90 days trading horizon Indian Oil is expected to generate 0.57 times more return on investment than Indian Overseas. However, Indian Oil is 1.76 times less risky than Indian Overseas. It trades about -0.04 of its potential returns per unit of risk. Indian Overseas Bank is currently generating about -0.1 per unit of risk. If you would invest  13,520  in Indian Oil on December 30, 2024 and sell it today you would lose (750.00) from holding Indian Oil or give up 5.55% of portfolio value over 90 days.

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

Indian Oil  vs.  Indian Overseas Bank

Indian OilLimited

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 rather sound technical and fundamental indicators, Indian OilLimited is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Indian Overseas Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Overseas Bank 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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Indian OilLimited and Indian Overseas

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

The idea behind Indian Oil and Indian Overseas Bank 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.