Correlation Between Reliance Industries and Axis Bank

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

Diversification Opportunities for Reliance Industries and Axis Bank

0.91

Correlation Coefficient

Reliance Industries  Axis Bank

Almost no diversification

The 3 months correlation between Reliance and Axis is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and Axis Bank Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axis Bank 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 Axis Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axis Bank has no effect on the direction of Reliance Industries i.e., Reliance Industries and Axis Bank go up and down completely randomly.

Pair Corralation between Reliance Industries and Axis Bank

Assuming the 90 days trading horizon Reliance Industries Ltd is expected to under-perform the Axis Bank. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Ltd is 1.09 times less risky than Axis Bank. The stock trades about -0.19 of its potential returns per unit of risk. The Axis Bank Ltd is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  7,280  in Axis Bank Ltd on September 13, 2024 and sell it today you would lose (560.00) from holding Axis Bank Ltd or give up 7.69% of portfolio value over 90 days.

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

Reliance Industries Ltd  vs.  Axis Bank Ltd

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Axis Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axis Bank Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Reliance Industries and Axis Bank

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

The idea behind Reliance Industries Ltd and Axis Bank Ltd 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.