Correlation Between Indian Oil and SBI Cards

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

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

Diversification Opportunities for Indian Oil and SBI Cards

0.81

Correlation Coefficient

Indian Oil  SBI Cards

Very poor diversification

The 3 months correlation between Indian and SBI is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and SBI Cards and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Cards 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 SBI Cards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Cards has no effect on the direction of Indian Oil i.e., Indian Oil and SBI Cards go up and down completely randomly.

Pair Corralation between Indian Oil and SBI Cards

Assuming the 90 days trading horizon Indian Oil is expected to generate 1.05 times more return on investment than SBI Cards. However, Indian Oil is 1.05 times more volatile than SBI Cards and. It trades about -0.08 of its potential returns per unit of risk. SBI Cards and is currently generating about -0.15 per unit of risk. If you would invest  13,928  in Indian Oil on September 28, 2024 and sell it today you would lose (303.00) from holding Indian Oil or give up 2.18% of portfolio value over 90 days.

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

Indian Oil  vs.  SBI Cards and

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 conflicting 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.

SBI Cards

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Cards and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic 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.

Pair Trading with Indian Oil and SBI Cards

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

The idea behind Indian Oil and SBI Cards and 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.