Correlation Between Reliance Industries and Banco Products

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

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

Diversification Opportunities for Reliance Industries and Banco Products

-0.25

Correlation Coefficient

Reliance Industries  Banco Products

Very good diversification

The 3 months correlation between Reliance and Banco is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Banco Products Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Products and Reliance Industries 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 Industries Limited are associated (or correlated) with Banco Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Products has no effect on the direction of Reliance Industries i.e., Reliance Industries and Banco Products go up and down completely randomly.

Pair Corralation between Reliance Industries and Banco Products

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the Banco Products. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 102.75 times less risky than Banco Products. The stock trades about -0.11 of its potential returns per unit of risk. The Banco Products Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  34,930  in Banco Products Limited on October 6, 2024 and sell it today you would earn a total of  13,360  from holding Banco Products Limited or generate 38.25% return on investment over 90 days.

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

Reliance Industries Limited  vs.  Banco Products Limited

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Banco Products

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Products Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Banco Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and Banco Products

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

The idea behind Reliance Industries Limited and Banco Products 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.