Correlation Between Reliance Industries and Indian Railway

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

Diversification Opportunities for Reliance Industries and Indian Railway

0.5

Correlation Coefficient

Reliance Industries  Indian Railway

Very weak diversification

The 3 months correlation between Reliance and Indian is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance 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 Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of Reliance Industries i.e., Reliance Industries and Indian Railway go up and down completely randomly.

Pair Corralation between Reliance Industries and Indian Railway

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 0.45 times more return on investment than Indian Railway. However, Reliance Industries Limited is 2.21 times less risky than Indian Railway. It trades about 0.07 of its potential returns per unit of risk. Indian Railway Finance is currently generating about -0.08 per unit of risk. If you would invest  121,640  in Reliance Industries Limited on December 31, 2024 and sell it today you would earn a total of  5,870  from holding Reliance Industries Limited or generate 4.83% return on investment over 90 days.

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

Reliance Industries Limited  vs.  Indian Railway Finance

Reliance Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Reliance Industries is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Indian Railway Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Reliance Industries and Indian Railway

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

The idea behind Reliance Industries Limited and Indian Railway Finance 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 Transaction History module to view history of all your transactions and understand their impact on performance.