Correlation Between Salzer Electronics and Indian Oil

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

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

Diversification Opportunities for Salzer Electronics and Indian Oil

-0.45

Correlation Coefficient

Salzer Electronics  Indian Oil

Very good diversification

The 3 months correlation between Salzer and Indian is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Salzer Electronics Limited and Indian Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Oil and Salzer Electronics 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 Salzer Electronics Limited 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 Salzer Electronics i.e., Salzer Electronics and Indian Oil go up and down completely randomly.

Pair Corralation between Salzer Electronics and Indian Oil

Assuming the 90 days trading horizon Salzer Electronics Limited is expected to generate 3.1 times more return on investment than Indian Oil. However, Salzer Electronics is 3.1 times more volatile than Indian Oil. It trades about 0.49 of its potential returns per unit of risk. Indian Oil is currently generating about 0.05 per unit of risk. If you would invest  101,565  in Salzer Electronics Limited on September 25, 2024 and sell it today you would earn a total of  45,990  from holding Salzer Electronics Limited or generate 45.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Salzer Electronics Limited  vs.  Indian Oil

Salzer Electronics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Salzer Electronics Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, Salzer Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 weak 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 Salzer Electronics and Indian Oil

The main advantage of trading using opposite Salzer Electronics and Indian Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salzer Electronics 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 Salzer Electronics Limited 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.