Correlation Between Indian Oil and Credo Brands

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

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

Diversification Opportunities for Indian Oil and Credo Brands

0.75

Correlation Coefficient

Indian Oil  Credo Brands

Poor diversification

The 3 months correlation between Indian and Credo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Credo Brands Marketing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credo Brands Marketing 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 Credo Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credo Brands Marketing has no effect on the direction of Indian Oil i.e., Indian Oil and Credo Brands go up and down completely randomly.

Pair Corralation between Indian Oil and Credo Brands

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Credo Brands. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.88 times less risky than Credo Brands. The stock trades about -0.23 of its potential returns per unit of risk. The Credo Brands Marketing is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  20,137  in Credo Brands Marketing on September 5, 2024 and sell it today you would lose (526.00) from holding Credo Brands Marketing or give up 2.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Indian Oil  vs.  Credo Brands Marketing

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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Credo Brands Marketing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credo Brands Marketing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Credo Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Indian Oil and Credo Brands

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

The idea behind Indian Oil and Credo Brands Marketing 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.