Correlation Between Reliance Insurance and Ghani Chemical

Can any of the company-specific risk be diversified away by investing in both Reliance Insurance 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 Insurance 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 Insurance Co and Ghani Chemical Industries, you can compare the effects of market volatilities on Reliance Insurance 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 Insurance with a short position of Ghani Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Insurance and Ghani Chemical.

Diversification Opportunities for Reliance Insurance and Ghani Chemical

-0.24

Correlation Coefficient

Reliance Insurance  Ghani Chemical

Very good diversification

The 3 months correlation between Reliance and Ghani is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Insurance Co 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 Insurance 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 Insurance Co 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 Insurance i.e., Reliance Insurance and Ghani Chemical go up and down completely randomly.

Pair Corralation between Reliance Insurance and Ghani Chemical

Assuming the 90 days trading horizon Reliance Insurance is expected to generate 4.15 times less return on investment than Ghani Chemical. But when comparing it to its historical volatility, Reliance Insurance Co is 1.1 times less risky than Ghani Chemical. It trades about 0.04 of its potential returns per unit of risk. Ghani Chemical Industries is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,425  in Ghani Chemical Industries on December 23, 2024 and sell it today you would earn a total of  581.00  from holding Ghani Chemical Industries or generate 40.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.3%
Values	Daily Returns

Reliance Insurance Co  vs.  Ghani Chemical Industries

Reliance Insurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Insurance Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Reliance Insurance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ghani Chemical Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ghani Chemical Industries are ranked lower than 11 (%) 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 Insurance and Ghani Chemical

The main advantage of trading using opposite Reliance Insurance and Ghani Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Insurance 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 Insurance Co 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.