Correlation Between Indian Oil and Tata Consultancy

Can any of the company-specific risk be diversified away by investing in both Indian Oil and Tata Consultancy 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 Consultancy 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 Consultancy Services, you can compare the effects of market volatilities on Indian Oil and Tata Consultancy 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 Consultancy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Oil and Tata Consultancy.

Diversification Opportunities for Indian Oil and Tata Consultancy

0.21

Correlation Coefficient

Indian Oil  Tata Consultancy

Modest diversification

The 3 months correlation between Indian and Tata is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Tata Consultancy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Consultancy Services 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 Consultancy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Consultancy Services has no effect on the direction of Indian Oil i.e., Indian Oil and Tata Consultancy go up and down completely randomly.

Pair Corralation between Indian Oil and Tata Consultancy

Assuming the 90 days trading horizon Indian Oil is expected to generate 1.43 times less return on investment than Tata Consultancy. But when comparing it to its historical volatility, Indian Oil is 1.08 times less risky than Tata Consultancy. It trades about 0.32 of its potential returns per unit of risk. Tata Consultancy Services is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  401,950  in Tata Consultancy Services on September 16, 2024 and sell it today you would earn a total of  45,440  from holding Tata Consultancy Services or generate 11.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Indian Oil  vs.  Tata Consultancy Services

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.

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Consultancy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Indian Oil and Tata Consultancy

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

The idea behind Indian Oil and Tata Consultancy Services 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.