Correlation Between Reliance Industries and State Trading

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

Diversification Opportunities for Reliance Industries and State Trading

0.89

Correlation Coefficient

Reliance Industries  State Trading

Very poor diversification

The 3 months correlation between Reliance and State is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and The State Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Trading 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 State Trading. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Trading has no effect on the direction of Reliance Industries i.e., Reliance Industries and State Trading go up and down completely randomly.

Pair Corralation between Reliance Industries and State Trading

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 0.36 times more return on investment than State Trading. However, Reliance Industries Limited is 2.76 times less risky than State Trading. It trades about -0.17 of its potential returns per unit of risk. The State Trading is currently generating about -0.07 per unit of risk. If you would invest  150,945  in Reliance Industries Limited on September 3, 2024 and sell it today you would lose (20,030) from holding Reliance Industries Limited or give up 13.27% of portfolio value over 90 days.

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

Reliance Industries Limited  vs.  The State Trading

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.

State Trading

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The State Trading has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Reliance Industries and State Trading

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

The idea behind Reliance Industries Limited and The State Trading 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.