Correlation Between Reliance Infrastructure and Ortel Communications

Can any of the company-specific risk be diversified away by investing in both Reliance Infrastructure and Ortel Communications 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 Infrastructure and Ortel Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Reliance Infrastructure Limited and Ortel Communications Limited, you can compare the effects of market volatilities on Reliance Infrastructure and Ortel Communications 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 Infrastructure with a short position of Ortel Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Infrastructure and Ortel Communications.

Diversification Opportunities for Reliance Infrastructure and Ortel Communications

0.39

Correlation Coefficient

Reliance Infrastructure  Ortel Communications

Weak diversification

The 3 months correlation between Reliance and Ortel is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Infrastructure Limite and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and Reliance Infrastructure 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 Infrastructure Limited are associated (or correlated) with Ortel Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ortel Communications has no effect on the direction of Reliance Infrastructure i.e., Reliance Infrastructure and Ortel Communications go up and down completely randomly.

Pair Corralation between Reliance Infrastructure and Ortel Communications

Assuming the 90 days trading horizon Reliance Infrastructure Limited is expected to generate 1.56 times more return on investment than Ortel Communications. However, Reliance Infrastructure is 1.56 times more volatile than Ortel Communications Limited. It trades about -0.08 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about -0.37 per unit of risk. If you would invest  30,485  in Reliance Infrastructure Limited on October 11, 2024 and sell it today you would lose (1,780) from holding Reliance Infrastructure Limited or give up 5.84% of portfolio value over 90 days.

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

Reliance Infrastructure Limite  vs.  Ortel Communications Limited

Reliance Infrastructure

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Infrastructure Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Reliance Infrastructure is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Ortel Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ortel Communications 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 Infrastructure and Ortel Communications

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

The idea behind Reliance Infrastructure Limited and Ortel Communications 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.