Correlation Between Reliance Communications and NIIT

Can any of the company-specific risk be diversified away by investing in both Reliance Communications and NIIT 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 NIIT 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 NIIT Limited, you can compare the effects of market volatilities on Reliance Communications and NIIT 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 NIIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Communications and NIIT.

Diversification Opportunities for Reliance Communications and NIIT

-0.45

Correlation Coefficient

Reliance Communications  NIIT

Very good diversification

The 3 months correlation between Reliance and NIIT is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Communications Limite and NIIT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIIT Limited 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 NIIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIIT Limited has no effect on the direction of Reliance Communications i.e., Reliance Communications and NIIT go up and down completely randomly.

Pair Corralation between Reliance Communications and NIIT

Assuming the 90 days trading horizon Reliance Communications Limited is expected to generate 1.27 times more return on investment than NIIT. However, Reliance Communications is 1.27 times more volatile than NIIT Limited. It trades about 0.28 of its potential returns per unit of risk. NIIT Limited is currently generating about -0.28 per unit of risk. If you would invest  178.00  in Reliance Communications Limited on September 29, 2024 and sell it today you would earn a total of  31.00  from holding Reliance Communications Limited or generate 17.42% return on investment over 90 days.

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

Reliance Communications Limite  vs.  NIIT Limited

Reliance Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Communications Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Reliance Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NIIT Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NIIT Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, NIIT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Communications and NIIT

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

The idea behind Reliance Communications Limited and NIIT 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.