Correlation Between Reliance Industries and Tech Mahindra

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

Diversification Opportunities for Reliance Industries and Tech Mahindra

0.05

Correlation Coefficient

Reliance Industries  Tech Mahindra

Significant diversification

The 3 months correlation between Reliance and Tech is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Tech Mahindra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Mahindra 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 Tech Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Mahindra Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and Tech Mahindra go up and down completely randomly.

Pair Corralation between Reliance Industries and Tech Mahindra

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 0.74 times more return on investment than Tech Mahindra. However, Reliance Industries Limited is 1.36 times less risky than Tech Mahindra. It trades about 0.09 of its potential returns per unit of risk. Tech Mahindra Limited is currently generating about -0.14 per unit of risk. If you would invest  121,700  in Reliance Industries Limited on December 25, 2024 and sell it today you would earn a total of  8,510  from holding Reliance Industries Limited or generate 6.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Reliance Industries Limited  vs.  Tech Mahindra Limited

Reliance Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Reliance Industries may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tech Mahindra Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tech Mahindra Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental 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 Tech Mahindra

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

The idea behind Reliance Industries Limited and Tech Mahindra 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.