Correlation Between Indian OilLimited and Punjab National

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

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

Diversification Opportunities for Indian OilLimited and Punjab National

0.7

Correlation Coefficient

Indian OilLimited  Punjab National

Poor diversification

The 3 months correlation between Indian and Punjab is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Punjab National Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Punjab National 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 Punjab National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Punjab National Bank has no effect on the direction of Indian OilLimited i.e., Indian OilLimited and Punjab National go up and down completely randomly.

Pair Corralation between Indian OilLimited and Punjab National

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Punjab National. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.04 times less risky than Punjab National. The stock trades about -0.04 of its potential returns per unit of risk. The Punjab National Bank is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,176  in Punjab National Bank on December 30, 2024 and sell it today you would lose (563.00) from holding Punjab National Bank or give up 5.53% of portfolio value over 90 days.

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

Indian Oil  vs.  Punjab National 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.

Punjab National Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Punjab National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Punjab National is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Indian OilLimited and Punjab National

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

The idea behind Indian Oil and Punjab National 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.