Correlation Between Reliance Industries and RITES

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

Diversification Opportunities for Reliance Industries and RITES

0.94

Correlation Coefficient

Reliance Industries  RITES

Almost no diversification

The 3 months correlation between Reliance and RITES is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and RITES Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RITES 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 RITES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RITES Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and RITES go up and down completely randomly.

Pair Corralation between Reliance Industries and RITES

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the RITES. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 2.23 times less risky than RITES. The stock trades about -0.17 of its potential returns per unit of risk. The RITES Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  34,297  in RITES Limited on September 13, 2024 and sell it today you would lose (3,942) from holding RITES Limited or give up 11.49% of portfolio value over 90 days.

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

Reliance Industries Limited  vs.  RITES 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 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.

RITES Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RITES Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Reliance Industries and RITES

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

The idea behind Reliance Industries Limited and RITES 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.