Correlation Between Oil India and Rashtriya Chemicals

Can any of the company-specific risk be diversified away by investing in both Oil India and Rashtriya Chemicals 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 Rashtriya Chemicals 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 Rashtriya Chemicals and, you can compare the effects of market volatilities on Oil India and Rashtriya Chemicals 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 Rashtriya Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil India and Rashtriya Chemicals.

Diversification Opportunities for Oil India and Rashtriya Chemicals

-0.05

Correlation Coefficient

Oil India  Rashtriya Chemicals

Good diversification

The 3 months correlation between Oil and Rashtriya is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Oil India Limited and Rashtriya Chemicals and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rashtriya Chemicals and 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 Rashtriya Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rashtriya Chemicals and has no effect on the direction of Oil India i.e., Oil India and Rashtriya Chemicals go up and down completely randomly.

Pair Corralation between Oil India and Rashtriya Chemicals

Assuming the 90 days trading horizon Oil India Limited is expected to generate 0.92 times more return on investment than Rashtriya Chemicals. However, Oil India Limited is 1.09 times less risky than Rashtriya Chemicals. It trades about 0.01 of its potential returns per unit of risk. Rashtriya Chemicals and is currently generating about -0.02 per unit of risk. If you would invest  46,955  in Oil India Limited on October 12, 2024 and sell it today you would lose (255.00) from holding Oil India Limited or give up 0.54% of portfolio value over 90 days.

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

Oil India Limited  vs.  Rashtriya Chemicals and

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

Rashtriya Chemicals and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rashtriya Chemicals and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rashtriya Chemicals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Oil India and Rashtriya Chemicals

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

The idea behind Oil India Limited and Rashtriya Chemicals and 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.