Correlation Between Reliance Industrial and Bajaj Holdings

Can any of the company-specific risk be diversified away by investing in both Reliance Industrial and Bajaj Holdings 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 Industrial and Bajaj Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Reliance Industrial Infrastructure and Bajaj Holdings Investment, you can compare the effects of market volatilities on Reliance Industrial and Bajaj Holdings 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 Industrial with a short position of Bajaj Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Industrial and Bajaj Holdings.

Diversification Opportunities for Reliance Industrial and Bajaj Holdings

0.25

Correlation Coefficient

Reliance Industrial  Bajaj Holdings

Modest diversification

The 3 months correlation between Reliance and Bajaj is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industrial Infrastruc and Bajaj Holdings Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Holdings Investment and Reliance Industrial 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 Industrial Infrastructure are associated (or correlated) with Bajaj Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Holdings Investment has no effect on the direction of Reliance Industrial i.e., Reliance Industrial and Bajaj Holdings go up and down completely randomly.

Pair Corralation between Reliance Industrial and Bajaj Holdings

Assuming the 90 days trading horizon Reliance Industrial Infrastructure is expected to generate 2.46 times more return on investment than Bajaj Holdings. However, Reliance Industrial is 2.46 times more volatile than Bajaj Holdings Investment. It trades about 0.14 of its potential returns per unit of risk. Bajaj Holdings Investment is currently generating about -0.04 per unit of risk. If you would invest  109,585  in Reliance Industrial Infrastructure on September 4, 2024 and sell it today you would earn a total of  10,675  from holding Reliance Industrial Infrastructure or generate 9.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Reliance Industrial Infrastruc  vs.  Bajaj Holdings Investment

Reliance Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industrial Infrastructure are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Reliance Industrial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Bajaj Holdings Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bajaj Holdings Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Bajaj Holdings is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Reliance Industrial and Bajaj Holdings

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

The idea behind Reliance Industrial Infrastructure and Bajaj Holdings 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.