Correlation Between Reliance Industries and Oil Country

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

Diversification Opportunities for Reliance Industries and Oil Country

-0.41

Correlation Coefficient

Reliance Industries  Oil Country

Very good diversification

The 3 months correlation between Reliance and Oil is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Oil Country Tubular in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Country Tubular 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 Oil Country. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Country Tubular has no effect on the direction of Reliance Industries i.e., Reliance Industries and Oil Country go up and down completely randomly.

Pair Corralation between Reliance Industries and Oil Country

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 3.48 times more return on investment than Oil Country. However, Reliance Industries is 3.48 times more volatile than Oil Country Tubular. It trades about 0.04 of its potential returns per unit of risk. Oil Country Tubular is currently generating about 0.11 per unit of risk. If you would invest  114,714  in Reliance Industries Limited on October 22, 2024 and sell it today you would earn a total of  15,521  from holding Reliance Industries Limited or generate 13.53% 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.  Oil Country Tubular

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 rather sound basic indicators, Reliance Industries is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Oil Country Tubular

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Country Tubular are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Oil Country displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and Oil Country

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

The idea behind Reliance Industries Limited and Oil Country Tubular 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.