Correlation Between Reliance Weaving and Ghani Chemical

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

By analyzing existing cross correlation between Reliance Weaving Mills and Ghani Chemical Industries, you can compare the effects of market volatilities on Reliance Weaving and Ghani Chemical 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 Weaving with a short position of Ghani Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Weaving and Ghani Chemical.

Diversification Opportunities for Reliance Weaving and Ghani Chemical

0.29

Correlation Coefficient

Reliance Weaving  Ghani Chemical

Modest diversification

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

Pair Corralation between Reliance Weaving and Ghani Chemical

Assuming the 90 days trading horizon Reliance Weaving is expected to generate 3.0 times less return on investment than Ghani Chemical. But when comparing it to its historical volatility, Reliance Weaving Mills is 2.92 times less risky than Ghani Chemical. It trades about 0.07 of its potential returns per unit of risk. Ghani Chemical Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,733  in Ghani Chemical Industries on December 29, 2024 and sell it today you would earn a total of  246.00  from holding Ghani Chemical Industries or generate 14.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	66.67%
Values	Daily Returns

Reliance Weaving Mills  vs.  Ghani Chemical Industries

Reliance Weaving Mills

Risk-Adjusted Performance

Modest

Over the last 90 days Reliance Weaving Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reliance Weaving is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ghani Chemical Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ghani Chemical Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ghani Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Weaving and Ghani Chemical

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

The idea behind Reliance Weaving Mills and Ghani Chemical Industries 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.