Correlation Between Reliance Insurance and Nestle Pakistan

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

Diversification Opportunities for Reliance Insurance and Nestle Pakistan

-0.09

Correlation Coefficient

Reliance Insurance  Nestle Pakistan

Good diversification

The 3 months correlation between Reliance and Nestle is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Insurance Co and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan 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 Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Reliance Insurance i.e., Reliance Insurance and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Reliance Insurance and Nestle Pakistan

Assuming the 90 days trading horizon Reliance Insurance Co is expected to generate 2.26 times more return on investment than Nestle Pakistan. However, Reliance Insurance is 2.26 times more volatile than Nestle Pakistan. It trades about 0.09 of its potential returns per unit of risk. Nestle Pakistan is currently generating about 0.04 per unit of risk. If you would invest  1,035  in Reliance Insurance Co on September 13, 2024 and sell it today you would earn a total of  175.00  from holding Reliance Insurance Co or generate 16.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Reliance Insurance Co  vs.  Nestle Pakistan

Reliance Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Insurance Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Reliance Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Nestle Pakistan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nestle Pakistan 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 Insurance and Nestle Pakistan

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

The idea behind Reliance Insurance Co and Nestle Pakistan 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.