Correlation Between Indian Renewable and REC

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

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

Diversification Opportunities for Indian Renewable and REC

0.64

Correlation Coefficient

Indian Renewable  REC

Poor diversification

The 3 months correlation between Indian and REC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Indian Renewable Energy and REC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REC Limited and Indian Renewable 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 Indian Renewable Energy are associated (or correlated) with REC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REC Limited has no effect on the direction of Indian Renewable i.e., Indian Renewable and REC go up and down completely randomly.

Pair Corralation between Indian Renewable and REC

Assuming the 90 days trading horizon Indian Renewable Energy is expected to generate 1.05 times more return on investment than REC. However, Indian Renewable is 1.05 times more volatile than REC Limited. It trades about -0.08 of its potential returns per unit of risk. REC Limited is currently generating about -0.1 per unit of risk. If you would invest  23,546  in Indian Renewable Energy on September 4, 2024 and sell it today you would lose (3,151) from holding Indian Renewable Energy or give up 13.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Indian Renewable Energy  vs.  REC Limited

Indian Renewable Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Renewable Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

REC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days REC 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 somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Indian Renewable and REC

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

The idea behind Indian Renewable Energy and REC 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..