Correlation Between Reliance Industries and Baker Steel

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

Diversification Opportunities for Reliance Industries and Baker Steel

-0.65

Correlation Coefficient

Reliance Industries  Baker Steel

Excellent diversification

The 3 months correlation between Reliance and Baker is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and Baker Steel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Steel Resources 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 Baker Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Steel Resources has no effect on the direction of Reliance Industries i.e., Reliance Industries and Baker Steel go up and down completely randomly.

Pair Corralation between Reliance Industries and Baker Steel

Assuming the 90 days trading horizon Reliance Industries Ltd is expected to under-perform the Baker Steel. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Ltd is 1.73 times less risky than Baker Steel. The stock trades about -0.14 of its potential returns per unit of risk. The Baker Steel Resources is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,050  in Baker Steel Resources on October 7, 2024 and sell it today you would earn a total of  750.00  from holding Baker Steel Resources or generate 14.85% return on investment over 90 days.

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

Reliance Industries Ltd  vs.  Baker Steel Resources

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.

Baker Steel Resources

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Steel Resources are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Baker Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and Baker Steel

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

The idea behind Reliance Industries Ltd and Baker Steel Resources 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..