Correlation Between Garware Technical and Reliance Industries

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

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

Diversification Opportunities for Garware Technical and Reliance Industries

-0.13

Correlation Coefficient

Garware Technical  Reliance Industries

Good diversification

The 3 months correlation between Garware and Reliance is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Garware Technical Fibres and Reliance Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries and Garware Technical 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 Garware Technical Fibres 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 Garware Technical i.e., Garware Technical and Reliance Industries go up and down completely randomly.

Pair Corralation between Garware Technical and Reliance Industries

Assuming the 90 days trading horizon Garware Technical Fibres is expected to generate 4.52 times more return on investment than Reliance Industries. However, Garware Technical is 4.52 times more volatile than Reliance Industries Limited. It trades about 0.07 of its potential returns per unit of risk. Reliance Industries Limited is currently generating about 0.05 per unit of risk. If you would invest  59,189  in Garware Technical Fibres on October 7, 2024 and sell it today you would earn a total of  31,951  from holding Garware Technical Fibres or generate 53.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Garware Technical Fibres  vs.  Reliance Industries Limited

Garware Technical Fibres

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garware Technical Fibres are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Garware Technical reported solid returns over the last few months and may actually be approaching a breakup point.

Reliance Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Garware Technical and Reliance Industries

The main advantage of trading using opposite Garware Technical and Reliance Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Garware Technical 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 Garware Technical Fibres and Reliance Industries 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.