Correlation Between Nestle India and Reliance Industries

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

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

Diversification Opportunities for Nestle India and Reliance Industries

0.9

Correlation Coefficient

Nestle India  Reliance Industries

Almost no diversification

The 3 months correlation between Nestle and Reliance is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Nestle India Limited and Reliance Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries and Nestle India 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 Nestle India Limited 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 Nestle India i.e., Nestle India and Reliance Industries go up and down completely randomly.

Pair Corralation between Nestle India and Reliance Industries

Assuming the 90 days trading horizon Nestle India Limited is expected to under-perform the Reliance Industries. But the stock apears to be less risky and, when comparing its historical volatility, Nestle India Limited is 9.23 times less risky than Reliance Industries. The stock trades about -0.04 of its potential returns per unit of risk. The Reliance Industries Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  142,999  in Reliance Industries Limited on October 2, 2024 and sell it today you would lose (21,929) from holding Reliance Industries Limited or give up 15.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Nestle India Limited  vs.  Reliance Industries Limited

Nestle India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Nestle India and Reliance Industries

The main advantage of trading using opposite Nestle India and Reliance Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle India 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 Nestle India Limited 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.