Correlation Between Reliance Industries and Mercantile Investment

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

Diversification Opportunities for Reliance Industries and Mercantile Investment

-0.14

Correlation Coefficient

Reliance Industries  Mercantile Investment

Good diversification

The 3 months correlation between Reliance and Mercantile is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Ltd and The Mercantile Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Mercantile Investment 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 Mercantile Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Mercantile Investment has no effect on the direction of Reliance Industries i.e., Reliance Industries and Mercantile Investment go up and down completely randomly.

Pair Corralation between Reliance Industries and Mercantile Investment

Assuming the 90 days trading horizon Reliance Industries Ltd is expected to generate 1.2 times more return on investment than Mercantile Investment. However, Reliance Industries is 1.2 times more volatile than The Mercantile Investment. It trades about 0.05 of its potential returns per unit of risk. The Mercantile Investment is currently generating about 0.01 per unit of risk. If you would invest  5,690  in Reliance Industries Ltd on December 27, 2024 and sell it today you would earn a total of  230.00  from holding Reliance Industries Ltd or generate 4.04% 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.  The Mercantile Investment

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 4 (%) 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.

The Mercantile Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Mercantile Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Mercantile 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 Mercantile Investment

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

The idea behind Reliance Industries Ltd and The Mercantile Investment 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.

Check out your portfolio center.

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.