Correlation Between Centrica PLC and Reliance Industries

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

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

Diversification Opportunities for Centrica PLC and Reliance Industries

-0.13

Correlation Coefficient

Centrica PLC  Reliance Industries

Good diversification

The 3 months correlation between Centrica and Reliance is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Centrica PLC and Reliance Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries and Centrica PLC 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 Centrica PLC 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 Centrica PLC i.e., Centrica PLC and Reliance Industries go up and down completely randomly.

Pair Corralation between Centrica PLC and Reliance Industries

Assuming the 90 days trading horizon Centrica PLC is expected to generate 1.06 times more return on investment than Reliance Industries. However, Centrica PLC is 1.06 times more volatile than Reliance Industries Ltd. It trades about 0.12 of its potential returns per unit of risk. Reliance Industries Ltd is currently generating about -0.09 per unit of risk. If you would invest  12,040  in Centrica PLC on September 21, 2024 and sell it today you would earn a total of  455.00  from holding Centrica PLC or generate 3.78% return on investment over 90 days.

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

Centrica PLC  vs.  Reliance Industries Ltd

Centrica PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Centrica PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Centrica PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Centrica PLC and Reliance Industries

The main advantage of trading using opposite Centrica PLC and Reliance Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrica PLC 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 Centrica PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.