Correlation Between India Glycols and Reliance Communications

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

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

Diversification Opportunities for India Glycols and Reliance Communications

0.7

Correlation Coefficient

India Glycols  Reliance Communications

Poor diversification

The 3 months correlation between India and Reliance is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding India Glycols 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 India Glycols 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 India Glycols 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 India Glycols i.e., India Glycols and Reliance Communications go up and down completely randomly.

Pair Corralation between India Glycols and Reliance Communications

Assuming the 90 days trading horizon India Glycols Limited is expected to generate 0.95 times more return on investment than Reliance Communications. However, India Glycols Limited is 1.05 times less risky than Reliance Communications. It trades about 0.06 of its potential returns per unit of risk. Reliance Communications Limited is currently generating about 0.01 per unit of risk. If you would invest  72,537  in India Glycols Limited on October 4, 2024 and sell it today you would earn a total of  55,838  from holding India Glycols Limited or generate 76.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.38%
Values	Daily Returns

India Glycols Limited  vs.  Reliance Communications Limite

India Glycols Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days India Glycols Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, India Glycols is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Reliance Communications

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with India Glycols and Reliance Communications

The main advantage of trading using opposite India Glycols and Reliance Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if India Glycols 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 India Glycols 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.