Correlation Between HDFC Life and Indian Oil

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Can any of the company-specific risk be diversified away by investing in both HDFC Life 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 HDFC Life and Indian Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HDFC Life Insurance and Indian Oil, you can compare the effects of market volatilities on HDFC Life 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 HDFC Life with a short position of Indian Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Life and Indian Oil.

Diversification Opportunities for HDFC Life and Indian Oil

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between HDFC and Indian is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Life Insurance and Indian Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Oil and HDFC Life 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 HDFC Life Insurance 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 HDFC Life i.e., HDFC Life and Indian Oil go up and down completely randomly.

Pair Corralation between HDFC Life and Indian Oil

Assuming the 90 days trading horizon HDFC Life Insurance is expected to generate 0.87 times more return on investment than Indian Oil. However, HDFC Life Insurance is 1.14 times less risky than Indian Oil. It trades about -0.22 of its potential returns per unit of risk. Indian Oil is currently generating about -0.24 per unit of risk. If you would invest  74,060  in HDFC Life Insurance on October 14, 2024 and sell it today you would lose (13,195) from holding HDFC Life Insurance or give up 17.82% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.41%
ValuesDaily Returns

HDFC Life Insurance  vs.  Indian Oil

 Performance 
       Timeline  
HDFC Life Insurance 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days HDFC Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Indian Oil 

Risk-Adjusted Performance

0 of 100

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

HDFC Life and Indian Oil Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HDFC Life and Indian Oil

The main advantage of trading using opposite HDFC Life and Indian Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Life 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.
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The idea behind HDFC Life Insurance 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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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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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