Correlation Between GM and Reliance Power

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

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

Diversification Opportunities for GM and Reliance Power

-0.51

Correlation Coefficient

GM  Reliance Power

Excellent diversification

The 3 months correlation between GM and Reliance is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Reliance Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Power and GM 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 General Motors 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 GM i.e., GM and Reliance Power go up and down completely randomly.

Pair Corralation between GM and Reliance Power

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Reliance Power. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.02 times less risky than Reliance Power. The stock trades about -0.08 of its potential returns per unit of risk. The Reliance Power Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,379  in Reliance Power Limited on October 23, 2024 and sell it today you would lose (173.00) from holding Reliance Power Limited or give up 3.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

General Motors  vs.  Reliance Power Limited

General Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Reliance Power

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Power Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Reliance Power may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GM and Reliance Power

The main advantage of trading using opposite GM and Reliance Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.