Correlation Between Indian Oil and Zenith Steel

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

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

Diversification Opportunities for Indian Oil and Zenith Steel

0.7

Correlation Coefficient

Indian Oil  Zenith Steel

Poor diversification

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

Pair Corralation between Indian Oil and Zenith Steel

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the Zenith Steel. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.32 times less risky than Zenith Steel. The stock trades about -0.21 of its potential returns per unit of risk. The Zenith Steel Pipes is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  975.00  in Zenith Steel Pipes on September 3, 2024 and sell it today you would lose (71.00) from holding Zenith Steel Pipes or give up 7.28% of portfolio value over 90 days.

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

Indian Oil  vs.  Zenith Steel Pipes

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 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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Zenith Steel 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 Zenith Steel

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

The idea behind Indian Oil and Zenith Steel Pipes 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.