Correlation Between Vedanta and Reliance Industries

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

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

Diversification Opportunities for Vedanta and Reliance Industries

0.74

Correlation Coefficient

Vedanta  Reliance Industries

Poor diversification

The 3 months correlation between Vedanta and Reliance is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Vedanta 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 Vedanta 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 Vedanta 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 Vedanta i.e., Vedanta and Reliance Industries go up and down completely randomly.

Pair Corralation between Vedanta and Reliance Industries

Assuming the 90 days trading horizon Vedanta Limited is expected to generate 1.75 times more return on investment than Reliance Industries. However, Vedanta is 1.75 times more volatile than Reliance Industries Limited. It trades about 0.04 of its potential returns per unit of risk. Reliance Industries Limited is currently generating about 0.07 per unit of risk. If you would invest  44,445  in Vedanta Limited on December 31, 2024 and sell it today you would earn a total of  1,895  from holding Vedanta Limited or generate 4.26% return on investment over 90 days.

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

Vedanta Limited  vs.  Reliance Industries Limited

Vedanta Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vedanta Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vedanta is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Reliance Industries

Risk-Adjusted Performance

Modest

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 Vedanta and Reliance Industries

The main advantage of trading using opposite Vedanta and Reliance Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vedanta 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 Vedanta 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.