Correlation Between Parag Milk and Indian Overseas

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

By analyzing existing cross correlation between Parag Milk Foods and Indian Overseas Bank, you can compare the effects of market volatilities on Parag Milk and Indian Overseas 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 Parag Milk with a short position of Indian Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parag Milk and Indian Overseas.

Diversification Opportunities for Parag Milk and Indian Overseas

0.4

Correlation Coefficient

Parag Milk  Indian Overseas

Very weak diversification

The 3 months correlation between Parag and Indian is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Parag Milk Foods and Indian Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Overseas Bank and Parag Milk 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 Parag Milk Foods are associated (or correlated) with Indian Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Overseas Bank has no effect on the direction of Parag Milk i.e., Parag Milk and Indian Overseas go up and down completely randomly.

Pair Corralation between Parag Milk and Indian Overseas

Assuming the 90 days trading horizon Parag Milk Foods is expected to under-perform the Indian Overseas. But the stock apears to be less risky and, when comparing its historical volatility, Parag Milk Foods is 1.02 times less risky than Indian Overseas. The stock trades about -0.48 of its potential returns per unit of risk. The Indian Overseas Bank is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  5,748  in Indian Overseas Bank on October 8, 2024 and sell it today you would lose (438.00) from holding Indian Overseas Bank or give up 7.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Parag Milk Foods  vs.  Indian Overseas Bank

Parag Milk Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Parag Milk Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Indian Overseas Bank

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Parag Milk and Indian Overseas

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

The idea behind Parag Milk Foods and Indian Overseas Bank 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.