Correlation Between Indian Oil and Tata Investment

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

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

Diversification Opportunities for Indian Oil and Tata Investment

0.91

Correlation Coefficient

Indian Oil  Tata Investment

Almost no diversification

The 3 months correlation between Indian and Tata is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Tata Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Investment 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 Tata Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Investment has no effect on the direction of Indian Oil i.e., Indian Oil and Tata Investment go up and down completely randomly.

Pair Corralation between Indian Oil and Tata Investment

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Tata Investment. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.47 times less risky than Tata Investment. The stock trades about -0.16 of its potential returns per unit of risk. The Tata Investment is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  673,240  in Tata Investment on December 2, 2024 and sell it today you would lose (66,695) from holding Tata Investment or give up 9.91% of portfolio value over 90 days.

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

Indian Oil  vs.  Tata Investment

Indian Oil

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tata Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tata Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Indian Oil and Tata Investment

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

The idea behind Indian Oil and Tata Investment 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.