Correlation Between Power Mech and Reliance Industries

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

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

Diversification Opportunities for Power Mech and Reliance Industries

0.9

Correlation Coefficient

Power Mech  Reliance Industries

Almost no diversification

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

Pair Corralation between Power Mech and Reliance Industries

Assuming the 90 days trading horizon Power Mech Projects is expected to generate 1.83 times more return on investment than Reliance Industries. However, Power Mech is 1.83 times more volatile than Reliance Industries Limited. It trades about 0.09 of its potential returns per unit of risk. Reliance Industries Limited is currently generating about -0.02 per unit of risk. If you would invest  253,630  in Power Mech Projects on September 21, 2024 and sell it today you would earn a total of  11,385  from holding Power Mech Projects or generate 4.49% return on investment over 90 days.

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

Power Mech Projects  vs.  Reliance Industries Limited

Power Mech Projects

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Mech Projects has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental 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.

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 weak 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 Power Mech and Reliance Industries

The main advantage of trading using opposite Power Mech and Reliance Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Mech 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 Power Mech Projects 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.