Correlation Between Reliance Industries and Thermax

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

Diversification Opportunities for Reliance Industries and Thermax

0.6

Correlation Coefficient

Reliance Industries  Thermax

Poor diversification

The 3 months correlation between Reliance and Thermax is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Thermax Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermax 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 Thermax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermax Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and Thermax go up and down completely randomly.

Pair Corralation between Reliance Industries and Thermax

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the Thermax. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 1.69 times less risky than Thermax. The stock trades about -0.17 of its potential returns per unit of risk. The Thermax Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  521,250  in Thermax Limited on September 17, 2024 and sell it today you would lose (30,765) from holding Thermax Limited or give up 5.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Reliance Industries Limited  vs.  Thermax 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 conflicting 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.

Thermax Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermax Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Thermax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Reliance Industries and Thermax

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

The idea behind Reliance Industries Limited and Thermax 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.