Correlation Between Reliance Industries and CATLIN GROUP

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

Diversification Opportunities for Reliance Industries and CATLIN GROUP

0.7

Correlation Coefficient

Reliance Industries  CATLIN GROUP

Poor diversification

The 3 months correlation between Reliance and CATLIN is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and CATLIN GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATLIN GROUP 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 CATLIN GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CATLIN GROUP has no effect on the direction of Reliance Industries i.e., Reliance Industries and CATLIN GROUP go up and down completely randomly.

Pair Corralation between Reliance Industries and CATLIN GROUP

Assuming the 90 days trading horizon Reliance Industries Ltd is expected to generate 1.55 times more return on investment than CATLIN GROUP. However, Reliance Industries is 1.55 times more volatile than CATLIN GROUP . It trades about -0.07 of its potential returns per unit of risk. CATLIN GROUP is currently generating about -0.12 per unit of risk. If you would invest  6,320  in Reliance Industries Ltd on October 22, 2024 and sell it today you would lose (340.00) from holding Reliance Industries Ltd or give up 5.38% 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.  CATLIN GROUP

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 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.

CATLIN GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Reliance Industries and CATLIN GROUP

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

The idea behind Reliance Industries Ltd and CATLIN GROUP 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.