Correlation Between Reliance Industries and Nahar Industrial

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

Diversification Opportunities for Reliance Industries and Nahar Industrial

0.7

Correlation Coefficient

Reliance Industries  Nahar Industrial

Poor diversification

The 3 months correlation between Reliance and Nahar is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Nahar Industrial Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nahar Industrial Ent 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 Nahar Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nahar Industrial Ent has no effect on the direction of Reliance Industries i.e., Reliance Industries and Nahar Industrial go up and down completely randomly.

Pair Corralation between Reliance Industries and Nahar Industrial

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the Nahar Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 1.56 times less risky than Nahar Industrial. The stock trades about -0.17 of its potential returns per unit of risk. The Nahar Industrial Enterprises is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  15,316  in Nahar Industrial Enterprises on September 15, 2024 and sell it today you would earn a total of  11.00  from holding Nahar Industrial Enterprises or generate 0.07% return on investment over 90 days.

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

Reliance Industries Limited  vs.  Nahar Industrial Enterprises

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 weak 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.

Nahar Industrial Ent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nahar Industrial Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Nahar Industrial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Reliance Industries and Nahar Industrial

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

The idea behind Reliance Industries Limited and Nahar Industrial Enterprises 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.