Correlation Between Suzlon Energy and Reliance Communications

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

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

Diversification Opportunities for Suzlon Energy and Reliance Communications

0.17

Correlation Coefficient

Suzlon Energy  Reliance Communications

Average diversification

The 3 months correlation between Suzlon and Reliance is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Suzlon Energy 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 Suzlon Energy 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 Suzlon Energy 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 Suzlon Energy i.e., Suzlon Energy and Reliance Communications go up and down completely randomly.

Pair Corralation between Suzlon Energy and Reliance Communications

Assuming the 90 days trading horizon Suzlon Energy Limited is expected to under-perform the Reliance Communications. In addition to that, Suzlon Energy is 1.03 times more volatile than Reliance Communications Limited. It trades about -0.07 of its total potential returns per unit of risk. Reliance Communications Limited is currently generating about 0.07 per unit of volatility. If you would invest  198.00  in Reliance Communications Limited on September 19, 2024 and sell it today you would earn a total of  22.00  from holding Reliance Communications Limited or generate 11.11% return on investment over 90 days.

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

Suzlon Energy Limited  vs.  Reliance Communications Limite

Suzlon Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suzlon Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Reliance Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Communications Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Reliance Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Suzlon Energy and Reliance Communications

The main advantage of trading using opposite Suzlon Energy and Reliance Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Suzlon Energy 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 Suzlon Energy 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.