Correlation Between Reliance Industries and India Glycols

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

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

Diversification Opportunities for Reliance Industries and India Glycols

0.36

Correlation Coefficient

Reliance Industries  India Glycols

Weak diversification

The 3 months correlation between Reliance and India is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and India Glycols Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on India Glycols Limited and Reliance Industries 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 Reliance Industries Limited are associated (or correlated) with India Glycols. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of India Glycols Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and India Glycols go up and down completely randomly.

Pair Corralation between Reliance Industries and India Glycols

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the India Glycols. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 2.72 times less risky than India Glycols. The stock trades about -0.18 of its potential returns per unit of risk. The India Glycols Limited is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  135,395  in India Glycols Limited on September 3, 2024 and sell it today you would lose (7,800) from holding India Glycols Limited or give up 5.76% of portfolio value over 90 days.

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

Reliance Industries Limited  vs.  India Glycols Limited

Reliance Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

India Glycols Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days India Glycols Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, India Glycols is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Reliance Industries and India Glycols

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

The idea behind Reliance Industries Limited and India Glycols 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.