Correlation Between Reliance Industries and Infosys

Can any of the company-specific risk be diversified away by investing in both Reliance Industries and Infosys 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 Infosys 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 Infosys Limited, you can compare the effects of market volatilities on Reliance Industries and Infosys 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 Infosys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Industries and Infosys.

Diversification Opportunities for Reliance Industries and Infosys

0.48

Correlation Coefficient

Reliance Industries  Infosys

Very weak diversification

The 3 months correlation between Reliance and Infosys is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Infosys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and Infosys go up and down completely randomly.

Pair Corralation between Reliance Industries and Infosys

Assuming the 90 days trading horizon Reliance Industries Limited is expected to under-perform the Infosys. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Industries Limited is 1.13 times less risky than Infosys. The stock trades about -0.18 of its potential returns per unit of risk. The Infosys Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  191,940  in Infosys Limited on September 3, 2024 and sell it today you would lose (6,155) from holding Infosys Limited or give up 3.21% of portfolio value over 90 days.

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

Reliance Industries Limited  vs.  Infosys 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.

Infosys Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Infosys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Infosys is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Reliance Industries and Infosys

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

The idea behind Reliance Industries Limited and Infosys 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.