Correlation Between Reliance Industries and Automatic Data

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

By analyzing existing cross correlation between Reliance Industries Ltd and Automatic Data Processing, you can compare the effects of market volatilities on Reliance Industries and Automatic Data 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 Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Industries and Automatic Data.

Diversification Opportunities for Reliance Industries and Automatic Data

-0.07

Correlation Coefficient

Reliance Industries  Automatic Data

Good diversification

The 3 months correlation between Reliance and Automatic is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Ltd are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Reliance Industries i.e., Reliance Industries and Automatic Data go up and down completely randomly.

Pair Corralation between Reliance Industries and Automatic Data

Assuming the 90 days trading horizon Reliance Industries is expected to generate 29.94 times less return on investment than Automatic Data. But when comparing it to its historical volatility, Reliance Industries Ltd is 18.59 times less risky than Automatic Data. It trades about 0.05 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  29,249  in Automatic Data Processing on December 30, 2024 and sell it today you would earn a total of  1,175  from holding Automatic Data Processing or generate 4.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Reliance Industries Ltd  vs.  Automatic Data Processing

Reliance Industries

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Reliance Industries is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Automatic Data Processing

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Automatic Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and Automatic Data

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

The idea behind Reliance Industries Ltd and Automatic Data Processing 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.