Correlation Between Indian Oil and NBCC

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

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

Diversification Opportunities for Indian Oil and NBCC

0.87

Correlation Coefficient

Indian Oil  NBCC

Very poor diversification

The 3 months correlation between Indian and NBCC is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and NBCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBCC 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 NBCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBCC Limited has no effect on the direction of Indian Oil i.e., Indian Oil and NBCC go up and down completely randomly.

Pair Corralation between Indian Oil and NBCC

Assuming the 90 days trading horizon Indian Oil is expected to under-perform the NBCC. But the stock apears to be less risky and, when comparing its historical volatility, Indian Oil is 1.39 times less risky than NBCC. The stock trades about -0.18 of its potential returns per unit of risk. The NBCC Limited is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  11,793  in NBCC Limited on September 23, 2024 and sell it today you would lose (2,350) from holding NBCC Limited or give up 19.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Indian Oil  vs.  NBCC Limited

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.

NBCC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NBCC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Indian Oil and NBCC

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

The idea behind Indian Oil and NBCC 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.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.