Correlation Between Indian Oil and Tarapur Transformers

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

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

Diversification Opportunities for Indian Oil and Tarapur Transformers

-0.7

Correlation Coefficient

Indian Oil  Tarapur Transformers

Excellent diversification

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

Pair Corralation between Indian Oil and Tarapur Transformers

Assuming the 90 days trading horizon Indian Oil is expected to generate 8.14 times less return on investment than Tarapur Transformers. But when comparing it to its historical volatility, Indian Oil is 1.94 times less risky than Tarapur Transformers. It trades about 0.15 of its potential returns per unit of risk. Tarapur Transformers Limited is currently generating about 0.63 of returns per unit of risk over similar time horizon. If you would invest  3,124  in Tarapur Transformers Limited on September 22, 2024 and sell it today you would earn a total of  1,425  from holding Tarapur Transformers Limited or generate 45.61% return on investment over 90 days.

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

Indian Oil  vs.  Tarapur Transformers Limited

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 weak 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.

Tarapur Transformers

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Oil and Tarapur Transformers

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

The idea behind Indian Oil and Tarapur Transformers Limited 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..