Correlation Between ITI and Oil India

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

By analyzing existing cross correlation between ITI Limited and Oil India Limited, you can compare the effects of market volatilities on ITI and Oil India 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 ITI with a short position of Oil India. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITI and Oil India.

Diversification Opportunities for ITI and Oil India

-0.11

Correlation Coefficient

ITI  Oil India

Good diversification

The 3 months correlation between ITI and Oil is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding ITI Limited and Oil India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil India Limited and ITI 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 ITI Limited are associated (or correlated) with Oil India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil India Limited has no effect on the direction of ITI i.e., ITI and Oil India go up and down completely randomly.

Pair Corralation between ITI and Oil India

Assuming the 90 days trading horizon ITI Limited is expected to generate 2.71 times more return on investment than Oil India. However, ITI is 2.71 times more volatile than Oil India Limited. It trades about 0.21 of its potential returns per unit of risk. Oil India Limited is currently generating about 0.04 per unit of risk. If you would invest  36,810  in ITI Limited on October 10, 2024 and sell it today you would earn a total of  12,185  from holding ITI Limited or generate 33.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

ITI Limited  vs.  Oil India Limited

ITI Limited

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Oil India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil India Limited 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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ITI and Oil India

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

The idea behind ITI Limited and Oil India 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.