Correlation Between Reliance Industries and Edelweiss Financial

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

Diversification Opportunities for Reliance Industries and Edelweiss Financial

0.47

Correlation Coefficient

Reliance Industries  Edelweiss Financial

Very weak diversification

The 3 months correlation between Reliance and Edelweiss is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Edelweiss Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edelweiss Financial 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 Edelweiss Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edelweiss Financial has no effect on the direction of Reliance Industries i.e., Reliance Industries and Edelweiss Financial go up and down completely randomly.

Pair Corralation between Reliance Industries and Edelweiss Financial

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the Edelweiss Financial. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 2.6 times less risky than Edelweiss Financial. The stock trades about -0.23 of its potential returns per unit of risk. The Edelweiss Financial Services is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  13,403  in Edelweiss Financial Services on September 25, 2024 and sell it today you would lose (1,060) from holding Edelweiss Financial Services or give up 7.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Reliance Industries Limited  vs.  Edelweiss Financial Services

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 conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Edelweiss Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edelweiss Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Edelweiss Financial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Reliance Industries and Edelweiss Financial

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

The idea behind Reliance Industries Limited and Edelweiss Financial Services 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.