Correlation Between New Residential and Reliance Industries

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

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

Diversification Opportunities for New Residential and Reliance Industries

-0.36

Correlation Coefficient

New Residential  Reliance Industries

Very good diversification

The 3 months correlation between New and Reliance is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Reliance Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries and New Residential 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 New Residential Investment are associated (or correlated) with Reliance Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Industries has no effect on the direction of New Residential i.e., New Residential and Reliance Industries go up and down completely randomly.

Pair Corralation between New Residential and Reliance Industries

Assuming the 90 days trading horizon New Residential Investment is expected to generate 0.84 times more return on investment than Reliance Industries. However, New Residential Investment is 1.19 times less risky than Reliance Industries. It trades about 0.14 of its potential returns per unit of risk. Reliance Industries Ltd is currently generating about 0.08 per unit of risk. If you would invest  1,068  in New Residential Investment on December 25, 2024 and sell it today you would earn a total of  112.00  from holding New Residential Investment or generate 10.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

New Residential Investment  vs.  Reliance Industries Ltd

New Residential Inve

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Reliance Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Ltd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Reliance Industries may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with New Residential and Reliance Industries

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

The idea behind New Residential Investment and Reliance Industries Ltd 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.