Correlation Between Vardhman Holdings and Reliance Infrastructure

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

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

Diversification Opportunities for Vardhman Holdings and Reliance Infrastructure

-0.37

Correlation Coefficient

Vardhman Holdings  Reliance Infrastructure

Very good diversification

The 3 months correlation between Vardhman and Reliance is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Vardhman Holdings Limited and Reliance Infrastructure Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Infrastructure and Vardhman Holdings 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 Vardhman Holdings Limited are associated (or correlated) with Reliance Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Infrastructure has no effect on the direction of Vardhman Holdings i.e., Vardhman Holdings and Reliance Infrastructure go up and down completely randomly.

Pair Corralation between Vardhman Holdings and Reliance Infrastructure

Assuming the 90 days trading horizon Vardhman Holdings Limited is expected to generate 1.59 times more return on investment than Reliance Infrastructure. However, Vardhman Holdings is 1.59 times more volatile than Reliance Infrastructure Limited. It trades about 0.07 of its potential returns per unit of risk. Reliance Infrastructure Limited is currently generating about 0.05 per unit of risk. If you would invest  396,710  in Vardhman Holdings Limited on October 8, 2024 and sell it today you would earn a total of  56,420  from holding Vardhman Holdings Limited or generate 14.22% return on investment over 90 days.

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

Vardhman Holdings Limited  vs.  Reliance Infrastructure Limite

Vardhman Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vardhman Holdings Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Vardhman Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Reliance Infrastructure

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Infrastructure Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Reliance Infrastructure may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vardhman Holdings and Reliance Infrastructure

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

The idea behind Vardhman Holdings Limited and Reliance Infrastructure 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.