Correlation Between Indian Oil and Bosch

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

Diversification Opportunities for Indian Oil and Bosch

0.7
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Indian Oil and Bosch

Assuming the 90 days trading horizon Indian Oil is expected to generate 1.6 times more return on investment than Bosch. However, Indian Oil is 1.6 times more volatile than Bosch Limited. It trades about 0.07 of its potential returns per unit of risk. Bosch Limited is currently generating about 0.12 per unit of risk. If you would invest  6,917  in Indian Oil on September 23, 2024 and sell it today you would earn a total of  6,791  from holding Indian Oil or generate 98.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

Indian Oil  vs.  Bosch Limited

 Performance 
       Timeline  
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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Bosch Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Bosch Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Bosch is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Indian Oil and Bosch Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Indian Oil and Bosch

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

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