Correlation Between 3M India and Reliance Communications

Can any of the company-specific risk be diversified away by investing in both 3M India and Reliance Communications 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 3M India and Reliance Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M India Limited and Reliance Communications Limited, you can compare the effects of market volatilities on 3M India and Reliance Communications 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 3M India with a short position of Reliance Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M India and Reliance Communications.

Diversification Opportunities for 3M India and Reliance Communications

0.45

Correlation Coefficient

3M India  Reliance Communications

Very weak diversification

The 3 months correlation between 3MINDIA and Reliance is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding 3M India Limited and Reliance Communications Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Communications and 3M India 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 3M India Limited are associated (or correlated) with Reliance Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Communications has no effect on the direction of 3M India i.e., 3M India and Reliance Communications go up and down completely randomly.

Pair Corralation between 3M India and Reliance Communications

Assuming the 90 days trading horizon 3M India Limited is expected to under-perform the Reliance Communications. But the stock apears to be less risky and, when comparing its historical volatility, 3M India Limited is 1.74 times less risky than Reliance Communications. The stock trades about -0.22 of its potential returns per unit of risk. The Reliance Communications Limited is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  198.00  in Reliance Communications Limited on December 2, 2024 and sell it today you would lose (23.00) from holding Reliance Communications Limited or give up 11.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

3M India Limited  vs.  Reliance Communications Limite

3M India Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days 3M India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Reliance Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Reliance Communications is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with 3M India and Reliance Communications

The main advantage of trading using opposite 3M India and Reliance Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M India position performs unexpectedly, Reliance Communications 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 Communications will offset losses from the drop in Reliance Communications' long position.

The idea behind 3M India Limited and Reliance Communications 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.