Correlation Between Indian Oil and Royal Orchid

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

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

Diversification Opportunities for Indian Oil and Royal Orchid

0.13

Correlation Coefficient

Indian Oil  Royal Orchid

Average diversification

The 3 months correlation between Indian and Royal is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Royal Orchid Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid Hotels 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 Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotels has no effect on the direction of Indian Oil i.e., Indian Oil and Royal Orchid go up and down completely randomly.

Pair Corralation between Indian Oil and Royal Orchid

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Royal Orchid. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.79 times less risky than Royal Orchid. The stock trades about -0.03 of its potential returns per unit of risk. The Royal Orchid Hotels is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  33,575  in Royal Orchid Hotels on October 6, 2024 and sell it today you would earn a total of  4,605  from holding Royal Orchid Hotels or generate 13.72% return on investment over 90 days.

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

Indian Oil  vs.  Royal Orchid Hotels

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.

Royal Orchid Hotels

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Royal Orchid sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Oil and Royal Orchid

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

The idea behind Indian Oil and Royal Orchid Hotels 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.