Correlation Between IOC and POT

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

By analyzing existing cross correlation between IOC and POT, you can compare the effects of market volatilities on IOC and POT 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 IOC with a short position of POT. Check out your portfolio center. Please also check ongoing floating volatility patterns of IOC and POT.

Diversification Opportunities for IOC and POT

1.0

Correlation Coefficient

IOC  POT

No risk reduction

The 3 months correlation between IOC and POT is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding IOC and POT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POT and IOC 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 IOC are associated (or correlated) with POT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POT has no effect on the direction of IOC i.e., IOC and POT go up and down completely randomly.

Pair Corralation between IOC and POT

Assuming the 90 days trading horizon IOC is expected to generate 1.13 times less return on investment than POT. In addition to that, IOC is 1.0 times more volatile than POT. It trades about 0.2 of its total potential returns per unit of risk. POT is currently generating about 0.23 per unit of volatility. If you would invest  0.06  in POT on April 24, 2025 and sell it today you would earn a total of  0.02  from holding POT or generate 29.93% return on investment over 90 days.

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

IOC  vs.  POT

IOC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IOC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, IOC exhibited solid returns over the last few months and may actually be approaching a breakup point.

POT

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in POT are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, POT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IOC and POT

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

The idea behind IOC and POT 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.