Correlation Between Reliance Industries and ITI

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

Diversification Opportunities for Reliance Industries and ITI

-0.47

Correlation Coefficient

Reliance Industries  ITI

Very good diversification

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

Pair Corralation between Reliance Industries and ITI

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the ITI. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 4.45 times less risky than ITI. The stock trades about -0.19 of its potential returns per unit of risk. The ITI Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  27,884  in ITI Limited on September 26, 2024 and sell it today you would earn a total of  6,491  from holding ITI Limited or generate 23.28% return on investment over 90 days.

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

Reliance Industries Limited  vs.  ITI 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 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.

ITI Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and ITI

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

The idea behind Reliance Industries Limited and ITI 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.