Correlation Between Reliance Communications and Oriental Hotels

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

Diversification Opportunities for Reliance Communications and Oriental Hotels

0.59

Correlation Coefficient

Reliance Communications  Oriental Hotels

Very weak diversification

The 3 months correlation between Reliance and Oriental is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Communications Limite and Oriental Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Hotels 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 Oriental Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Hotels has no effect on the direction of Reliance Communications i.e., Reliance Communications and Oriental Hotels go up and down completely randomly.

Pair Corralation between Reliance Communications and Oriental Hotels

Assuming the 90 days trading horizon Reliance Communications Limited is expected to generate 1.11 times more return on investment than Oriental Hotels. However, Reliance Communications is 1.11 times more volatile than Oriental Hotels Limited. It trades about 0.01 of its potential returns per unit of risk. Oriental Hotels Limited is currently generating about -0.14 per unit of risk. If you would invest  178.00  in Reliance Communications Limited on November 29, 2024 and sell it today you would lose (3.00) from holding Reliance Communications Limited or give up 1.69% of portfolio value over 90 days.

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

Reliance Communications Limite  vs.  Oriental Hotels Limited

Reliance Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Reliance Communications is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Oriental Hotels

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Reliance Communications and Oriental Hotels

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

The idea behind Reliance Communications Limited and Oriental Hotels 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.