Correlation Between Tech Mahindra and Reliance Industries

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

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

Diversification Opportunities for Tech Mahindra and Reliance Industries

0.05

Correlation Coefficient

Tech Mahindra  Reliance Industries

Significant diversification

The 3 months correlation between Tech and Reliance is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Tech Mahindra Limited and Reliance Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries and Tech Mahindra 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 Tech Mahindra Limited are associated (or correlated) with Reliance Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Industries has no effect on the direction of Tech Mahindra i.e., Tech Mahindra and Reliance Industries go up and down completely randomly.

Pair Corralation between Tech Mahindra and Reliance Industries

Assuming the 90 days trading horizon Tech Mahindra Limited is expected to under-perform the Reliance Industries. In addition to that, Tech Mahindra is 1.35 times more volatile than Reliance Industries Limited. It trades about -0.14 of its total potential returns per unit of risk. Reliance Industries Limited is currently generating about 0.08 per unit of volatility. If you would invest  121,700  in Reliance Industries Limited on December 25, 2024 and sell it today you would earn a total of  6,845  from holding Reliance Industries Limited or generate 5.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Tech Mahindra Limited  vs.  Reliance Industries Limited

Tech Mahindra Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tech Mahindra Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Reliance Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Reliance Industries is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tech Mahindra and Reliance Industries

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

The idea behind Tech Mahindra Limited and Reliance Industries 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.