Correlation Between Reliance Industries and Khaitan Chemicals

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

Diversification Opportunities for Reliance Industries and Khaitan Chemicals

0.68

Correlation Coefficient

Reliance Industries  Khaitan Chemicals

Poor diversification

The 3 months correlation between Reliance and Khaitan is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Khaitan Chemicals Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Khaitan Chemicals 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 Khaitan Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Khaitan Chemicals has no effect on the direction of Reliance Industries i.e., Reliance Industries and Khaitan Chemicals go up and down completely randomly.

Pair Corralation between Reliance Industries and Khaitan Chemicals

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the Khaitan Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 1.93 times less risky than Khaitan Chemicals. The stock trades about -0.12 of its potential returns per unit of risk. The Khaitan Chemicals Fertilizers is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,487  in Khaitan Chemicals Fertilizers on October 5, 2024 and sell it today you would lose (328.00) from holding Khaitan Chemicals Fertilizers or give up 4.38% of portfolio value over 90 days.

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

Reliance Industries Limited  vs.  Khaitan Chemicals Fertilizers

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.

Khaitan Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Khaitan Chemicals Fertilizers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Khaitan Chemicals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Reliance Industries and Khaitan Chemicals

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

The idea behind Reliance Industries Limited and Khaitan Chemicals Fertilizers 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.