Correlation Between SAL Steel and Reliance Communications

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

By analyzing existing cross correlation between SAL Steel Limited and Reliance Communications Limited, you can compare the effects of market volatilities on SAL Steel and Reliance Communications 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 SAL Steel with a short position of Reliance Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAL Steel and Reliance Communications.

Diversification Opportunities for SAL Steel and Reliance Communications

0.71

Correlation Coefficient

SAL Steel  Reliance Communications

Poor diversification

The 3 months correlation between SAL and Reliance is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding SAL Steel Limited and Reliance Communications Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Communications and SAL Steel 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 SAL Steel Limited are associated (or correlated) with Reliance Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Communications has no effect on the direction of SAL Steel i.e., SAL Steel and Reliance Communications go up and down completely randomly.

Pair Corralation between SAL Steel and Reliance Communications

Assuming the 90 days trading horizon SAL Steel Limited is expected to under-perform the Reliance Communications. In addition to that, SAL Steel is 1.35 times more volatile than Reliance Communications Limited. It trades about -0.08 of its total potential returns per unit of risk. Reliance Communications Limited is currently generating about 0.01 per unit of volatility. If you would invest  178.00  in Reliance Communications Limited on November 29, 2024 and sell it today you would lose (3.00) from holding Reliance Communications Limited or give up 1.69% of portfolio value over 90 days.

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

SAL Steel Limited  vs.  Reliance Communications Limite

SAL Steel Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days SAL Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Reliance Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Reliance Communications is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SAL Steel and Reliance Communications

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

The idea behind SAL Steel Limited and Reliance Communications Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.