Correlation Between Reliance Industries and Aurora Investment

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

Diversification Opportunities for Reliance Industries and Aurora Investment

0.69

Correlation Coefficient

Reliance Industries  Aurora Investment

Poor diversification

The 3 months correlation between Reliance and Aurora is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and Aurora Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Investment Trust 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 Aurora Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Investment Trust has no effect on the direction of Reliance Industries i.e., Reliance Industries and Aurora Investment go up and down completely randomly.

Pair Corralation between Reliance Industries and Aurora Investment

Assuming the 90 days trading horizon Reliance Industries Ltd is expected to under-perform the Aurora Investment. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Ltd is 1.04 times less risky than Aurora Investment. The stock trades about -0.14 of its potential returns per unit of risk. The Aurora Investment Trust is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  24,200  in Aurora Investment Trust on October 7, 2024 and sell it today you would lose (1,400) from holding Aurora Investment Trust or give up 5.79% of portfolio value over 90 days.

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

Reliance Industries Ltd  vs.  Aurora Investment Trust

Reliance Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Aurora Investment Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Aurora Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Reliance Industries and Aurora Investment

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

The idea behind Reliance Industries Ltd and Aurora Investment Trust 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.