Correlation Between Indian Oil and S P

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

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

Diversification Opportunities for Indian Oil and S P

-0.06

Correlation Coefficient

Indian Oil  S P

Good diversification

The 3 months correlation between Indian and SPAL is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and S P Apparels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on S P Apparels 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 S P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of S P Apparels has no effect on the direction of Indian Oil i.e., Indian Oil and S P go up and down completely randomly.

Pair Corralation between Indian Oil and S P

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the S P. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.45 times less risky than S P. The stock trades about -0.17 of its potential returns per unit of risk. The S P Apparels is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  87,620  in S P Apparels on October 7, 2024 and sell it today you would earn a total of  3,200  from holding S P Apparels or generate 3.65% return on investment over 90 days.

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

Indian Oil  vs.  S P Apparels

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 inconsistent 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.

S P Apparels

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in S P Apparels are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, S P is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Indian Oil and S P

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

The idea behind Indian Oil and S P Apparels 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.