Correlation Between Lakshmi Finance and Indian Oil

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

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

Diversification Opportunities for Lakshmi Finance and Indian Oil

0.74

Correlation Coefficient

Lakshmi Finance  Indian Oil

Poor diversification

The 3 months correlation between Lakshmi and Indian is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Lakshmi Finance Industrial and Indian Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Oil and Lakshmi Finance 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 Lakshmi Finance Industrial are associated (or correlated) with Indian Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Oil has no effect on the direction of Lakshmi Finance i.e., Lakshmi Finance and Indian Oil go up and down completely randomly.

Pair Corralation between Lakshmi Finance and Indian Oil

Assuming the 90 days trading horizon Lakshmi Finance Industrial is expected to generate 1.8 times more return on investment than Indian Oil. However, Lakshmi Finance is 1.8 times more volatile than Indian Oil. It trades about 0.06 of its potential returns per unit of risk. Indian Oil is currently generating about 0.07 per unit of risk. If you would invest  10,979  in Lakshmi Finance Industrial on September 26, 2024 and sell it today you would earn a total of  12,071  from holding Lakshmi Finance Industrial or generate 109.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Lakshmi Finance Industrial  vs.  Indian Oil

Lakshmi Finance Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lakshmi Finance Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Lakshmi Finance is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Lakshmi Finance and Indian Oil

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

The idea behind Lakshmi Finance Industrial and Indian Oil 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .