Correlation Between Automotive Stampings and Reliance Power

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

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

Diversification Opportunities for Automotive Stampings and Reliance Power

0.35

Correlation Coefficient

Automotive Stampings  Reliance Power

Weak diversification

The 3 months correlation between Automotive and Reliance is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Automotive Stampings and and Reliance Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Power and Automotive Stampings 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 Automotive Stampings and are associated (or correlated) with Reliance Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Power has no effect on the direction of Automotive Stampings i.e., Automotive Stampings and Reliance Power go up and down completely randomly.

Pair Corralation between Automotive Stampings and Reliance Power

Assuming the 90 days trading horizon Automotive Stampings and is expected to under-perform the Reliance Power. But the stock apears to be less risky and, when comparing its historical volatility, Automotive Stampings and is 1.3 times less risky than Reliance Power. The stock trades about -0.03 of its potential returns per unit of risk. The Reliance Power Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,598  in Reliance Power Limited on October 8, 2024 and sell it today you would lose (18.00) from holding Reliance Power Limited or give up 0.39% of portfolio value over 90 days.

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

Automotive Stampings and  vs.  Reliance Power Limited

Automotive Stampings and

Risk-Adjusted Performance

0 of 100

Very Weak

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

Reliance Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Power Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Reliance Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Automotive Stampings and Reliance Power

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

The idea behind Automotive Stampings and and Reliance Power 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.