Correlation Between Reliance Industries and Spandana Sphoorty

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

Diversification Opportunities for Reliance Industries and Spandana Sphoorty

0.29

Correlation Coefficient

Reliance Industries  Spandana Sphoorty

Modest diversification

The 3 months correlation between Reliance and Spandana is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Spandana Sphoorty Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spandana Sphoorty 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 Spandana Sphoorty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spandana Sphoorty has no effect on the direction of Reliance Industries i.e., Reliance Industries and Spandana Sphoorty go up and down completely randomly.

Pair Corralation between Reliance Industries and Spandana Sphoorty

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 0.26 times more return on investment than Spandana Sphoorty. However, Reliance Industries Limited is 3.86 times less risky than Spandana Sphoorty. It trades about 0.06 of its potential returns per unit of risk. Spandana Sphoorty Financial is currently generating about -0.07 per unit of risk. If you would invest  122,150  in Reliance Industries Limited on December 27, 2024 and sell it today you would earn a total of  5,155  from holding Reliance Industries Limited or generate 4.22% return on investment over 90 days.

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

Reliance Industries Limited  vs.  Spandana Sphoorty Financial

Reliance Industries

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Reliance Industries is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Spandana Sphoorty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spandana Sphoorty Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Reliance Industries and Spandana Sphoorty

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

The idea behind Reliance Industries Limited and Spandana Sphoorty Financial 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.