Correlation Between Tata Steel and Reliance Industries

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

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

Diversification Opportunities for Tata Steel and Reliance Industries

0.91

Correlation Coefficient

Tata Steel  Reliance Industries

Almost no diversification

The 3 months correlation between Tata and Reliance is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Reliance Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries and Tata 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 Tata Steel 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 Tata Steel i.e., Tata Steel and Reliance Industries go up and down completely randomly.

Pair Corralation between Tata Steel and Reliance Industries

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Reliance Industries. In addition to that, Tata Steel is 1.68 times more volatile than Reliance Industries Ltd. It trades about -0.14 of its total potential returns per unit of risk. Reliance Industries Ltd is currently generating about -0.21 per unit of volatility. If you would invest  6,650  in Reliance Industries Ltd on October 8, 2024 and sell it today you would lose (950.00) from holding Reliance Industries Ltd or give up 14.29% of portfolio value over 90 days.

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

Tata Steel Limited  vs.  Reliance Industries Ltd

Tata Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Reliance Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Tata Steel and Reliance Industries

The main advantage of trading using opposite Tata Steel and Reliance Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Steel 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 Tata Steel Limited and Reliance Industries Ltd 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.