Correlation Between Indian Oil and Tech Mahindra

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

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

Diversification Opportunities for Indian Oil and Tech Mahindra

-0.72

Correlation Coefficient

Indian Oil  Tech Mahindra

Pay attention - limited upside

The 3 months correlation between Indian and Tech is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and Tech Mahindra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Mahindra Limited 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 Tech Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Mahindra Limited has no effect on the direction of Indian Oil i.e., Indian Oil and Tech Mahindra go up and down completely randomly.

Pair Corralation between Indian Oil and Tech Mahindra

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Tech Mahindra. In addition to that, Indian Oil is 1.08 times more volatile than Tech Mahindra Limited. It trades about -0.17 of its total potential returns per unit of risk. Tech Mahindra Limited is currently generating about 0.08 per unit of volatility. If you would invest  164,131  in Tech Mahindra Limited on September 13, 2024 and sell it today you would earn a total of  12,149  from holding Tech Mahindra Limited or generate 7.4% 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.  Tech Mahindra 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 uncertain 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.

Tech Mahindra Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Mahindra Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Tech Mahindra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Indian Oil and Tech Mahindra

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

The idea behind Indian Oil and Tech Mahindra 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.