Correlation Between Reliance Industries and GM Breweries

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

Diversification Opportunities for Reliance Industries and GM Breweries

0.6

Correlation Coefficient

Reliance Industries  GM Breweries

Poor diversification

The 3 months correlation between Reliance and GMBREW is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and GM Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GM Breweries Limited 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 GM Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GM Breweries Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and GM Breweries go up and down completely randomly.

Pair Corralation between Reliance Industries and GM Breweries

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 3.51 times more return on investment than GM Breweries. However, Reliance Industries is 3.51 times more volatile than GM Breweries Limited. It trades about 0.05 of its potential returns per unit of risk. GM Breweries Limited is currently generating about 0.07 per unit of risk. If you would invest  128,153  in Reliance Industries Limited on October 5, 2024 and sell it today you would lose (3,973) from holding Reliance Industries Limited or give up 3.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.18%
Values	Daily Returns

Reliance Industries Limited  vs.  GM Breweries 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 weak 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.

GM Breweries Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GM Breweries Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Reliance Industries and GM Breweries

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

The idea behind Reliance Industries Limited and GM Breweries 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.