Correlation Between Indian Oil and SBI Life

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

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

Diversification Opportunities for Indian Oil and SBI Life

0.93

Correlation Coefficient

Indian Oil  SBI Life

Almost no diversification

The 3 months correlation between Indian and SBI is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil and SBI Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Life Insurance 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 SBI Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Life Insurance has no effect on the direction of Indian Oil i.e., Indian Oil and SBI Life go up and down completely randomly.

Pair Corralation between Indian Oil and SBI Life

Assuming the 90 days trading horizon Indian Oil is expected to generate 1.11 times more return on investment than SBI Life. However, Indian Oil is 1.11 times more volatile than SBI Life Insurance. It trades about -0.17 of its potential returns per unit of risk. SBI Life Insurance is currently generating about -0.24 per unit of risk. If you would invest  17,320  in Indian Oil on September 13, 2024 and sell it today you would lose (3,001) from holding Indian Oil or give up 17.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Indian Oil  vs.  SBI Life Insurance

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 uncertain 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.

SBI Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward 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 Indian Oil and SBI Life

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

The idea behind Indian Oil and SBI Life Insurance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.