Correlation Between Oil India and Digjam

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

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

Diversification Opportunities for Oil India and Digjam

0.7

Correlation Coefficient

Oil India  Digjam

Poor diversification

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

Pair Corralation between Oil India and Digjam

Assuming the 90 days trading horizon Oil India Limited is expected to generate 0.98 times more return on investment than Digjam. However, Oil India Limited is 1.02 times less risky than Digjam. It trades about -0.02 of its potential returns per unit of risk. Digjam Limited is currently generating about -0.28 per unit of risk. If you would invest  41,808  in Oil India Limited on December 24, 2024 and sell it today you would lose (2,448) from holding Oil India Limited or give up 5.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Oil India Limited  vs.  Digjam Limited

Oil India Limited

Risk-Adjusted Performance

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 rather sound technical and fundamental indicators, Oil India is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Digjam Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digjam Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Oil India and Digjam

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

The idea behind Oil India Limited and Digjam 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.