Correlation Between Industrial Investment and Reliance Power

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

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

Diversification Opportunities for Industrial Investment and Reliance Power

-0.43

Correlation Coefficient

Industrial Investment  Reliance Power

Very good diversification

The 3 months correlation between Industrial and Reliance is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust and Reliance Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Power and Industrial Investment 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 Industrial Investment Trust 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 Industrial Investment i.e., Industrial Investment and Reliance Power go up and down completely randomly.

Pair Corralation between Industrial Investment and Reliance Power

Assuming the 90 days trading horizon Industrial Investment Trust is expected to under-perform the Reliance Power. But the stock apears to be less risky and, when comparing its historical volatility, Industrial Investment Trust is 1.24 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 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,152  in Reliance Power Limited on October 6, 2024 and sell it today you would earn a total of  428.00  from holding Reliance Power Limited or generate 10.31% return on investment over 90 days.

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

Industrial Investment Trust  vs.  Reliance Power Limited

Industrial Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Reliance Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Power Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reliance Power is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Industrial Investment and Reliance Power

The main advantage of trading using opposite Industrial Investment and Reliance Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Investment 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 Industrial Investment Trust 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.