Correlation Between Indian Oil and EIH Associated

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

Diversification Opportunities for Indian Oil and EIH Associated

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Indian and EIH is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and EIH Associated Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EIH Associated Hotels 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 EIH Associated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EIH Associated Hotels has no effect on the direction of Indian Oil i.e., Indian Oil and EIH Associated go up and down completely randomly.

Pair Corralation between Indian Oil and EIH Associated

Assuming the 90 days trading horizon Indian Oil is expected to generate 2.31 times less return on investment than EIH Associated. But when comparing it to its historical volatility, Indian Oil is 3.58 times less risky than EIH Associated. It trades about 0.07 of its potential returns per unit of risk. EIH Associated Hotels is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  22,163  in EIH Associated Hotels on August 25, 2024 and sell it today you would earn a total of  16,197  from holding EIH Associated Hotels or generate 73.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.59%
ValuesDaily Returns

Indian Oil  vs.  EIH Associated Hotels

 Performance 
       Timeline  
Indian Oil 

Risk-Adjusted Performance

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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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
EIH Associated Hotels 

Risk-Adjusted Performance

0 of 100

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

Indian Oil and EIH Associated Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Indian Oil and EIH Associated

The main advantage of trading using opposite Indian Oil and EIH Associated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Oil position performs unexpectedly, EIH Associated 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 EIH Associated will offset losses from the drop in EIH Associated's long position.
The idea behind Indian Oil and EIH Associated Hotels 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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