Correlation Between Reliance Communications and General Insurance

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

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

Diversification Opportunities for Reliance Communications and General Insurance

0.07

Correlation Coefficient

Reliance Communications  General Insurance

Significant diversification

The 3 months correlation between Reliance and General is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Communications Limite and General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Insurance and Reliance Communications 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 Reliance Communications Limited are associated (or correlated) with General Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Insurance has no effect on the direction of Reliance Communications i.e., Reliance Communications and General Insurance go up and down completely randomly.

Pair Corralation between Reliance Communications and General Insurance

Assuming the 90 days trading horizon Reliance Communications is expected to generate 1.95 times less return on investment than General Insurance. But when comparing it to its historical volatility, Reliance Communications Limited is 1.06 times less risky than General Insurance. It trades about 0.27 of its potential returns per unit of risk. General Insurance is currently generating about 0.49 of returns per unit of risk over similar time horizon. If you would invest  36,650  in General Insurance on September 22, 2024 and sell it today you would earn a total of  13,450  from holding General Insurance or generate 36.7% return on investment over 90 days.

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

Reliance Communications Limite  vs.  General Insurance

Reliance Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Communications Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Reliance Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

General Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Communications and General Insurance

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

The idea behind Reliance Communications Limited and General Insurance 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.