Correlation Between Reliance Communications and Vedanta

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

Diversification Opportunities for Reliance Communications and Vedanta

0.52

Correlation Coefficient

Reliance Communications  Vedanta

Very weak diversification

The 3 months correlation between Reliance and Vedanta is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Communications Limite and Vedanta Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vedanta 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 Vedanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vedanta Limited has no effect on the direction of Reliance Communications i.e., Reliance Communications and Vedanta go up and down completely randomly.

Pair Corralation between Reliance Communications and Vedanta

Assuming the 90 days trading horizon Reliance Communications Limited is expected to generate 1.54 times more return on investment than Vedanta. However, Reliance Communications is 1.54 times more volatile than Vedanta Limited. It trades about 0.27 of its potential returns per unit of risk. Vedanta Limited is currently generating about 0.18 per unit of risk. If you would invest  188.00  in Reliance Communications Limited on September 23, 2024 and sell it today you would earn a total of  32.00  from holding Reliance Communications Limited or generate 17.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Reliance Communications Limite  vs.  Vedanta Limited

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 unsteady basic indicators, Reliance Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vedanta Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vedanta Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vedanta is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Reliance Communications and Vedanta

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

The idea behind Reliance Communications Limited and Vedanta 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.