Correlation Between Reliance Industries and Sandhar Technologies

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

Diversification Opportunities for Reliance Industries and Sandhar Technologies

0.27

Correlation Coefficient

Reliance Industries  Sandhar Technologies

Modest diversification

The 3 months correlation between Reliance and Sandhar is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Sandhar Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandhar Technologies 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 Sandhar Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandhar Technologies has no effect on the direction of Reliance Industries i.e., Reliance Industries and Sandhar Technologies go up and down completely randomly.

Pair Corralation between Reliance Industries and Sandhar Technologies

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 0.77 times more return on investment than Sandhar Technologies. However, Reliance Industries Limited is 1.29 times less risky than Sandhar Technologies. It trades about -0.07 of its potential returns per unit of risk. Sandhar Technologies Limited is currently generating about -0.43 per unit of risk. If you would invest  126,830  in Reliance Industries Limited on October 15, 2024 and sell it today you would lose (2,640) from holding Reliance Industries Limited or give up 2.08% of portfolio value over 90 days.

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

Reliance Industries Limited  vs.  Sandhar Technologies 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 latest uncertain 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.

Sandhar Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandhar Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Reliance Industries and Sandhar Technologies

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

The idea behind Reliance Industries Limited and Sandhar Technologies 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.

Check out your portfolio center.

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.