Correlation Between K Electric and Reliance Insurance

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

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

Diversification Opportunities for K Electric and Reliance Insurance

0.69

Correlation Coefficient

K Electric  Reliance Insurance

Poor diversification

The 3 months correlation between KEL and Reliance is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding K Electric and Reliance Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Insurance and K Electric 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 K Electric are associated (or correlated) with Reliance Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Insurance has no effect on the direction of K Electric i.e., K Electric and Reliance Insurance go up and down completely randomly.

Pair Corralation between K Electric and Reliance Insurance

Assuming the 90 days trading horizon K Electric is expected to generate 1.14 times more return on investment than Reliance Insurance. However, K Electric is 1.14 times more volatile than Reliance Insurance Co. It trades about 0.16 of its potential returns per unit of risk. Reliance Insurance Co is currently generating about 0.09 per unit of risk. If you would invest  417.00  in K Electric on September 12, 2024 and sell it today you would earn a total of  174.00  from holding K Electric or generate 41.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

K Electric  vs.  Reliance Insurance Co

K Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K Electric are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, K Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Reliance Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Insurance Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Reliance Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with K Electric and Reliance Insurance

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

The idea behind K Electric and Reliance Insurance Co 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.