Correlation Between Reliance Communications and GAIL
Can any of the company-specific risk be diversified away by investing in both Reliance Communications and GAIL 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 Communications and GAIL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Reliance Communications Limited and GAIL Limited, you can compare the effects of market volatilities on Reliance Communications and GAIL 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 Communications with a short position of GAIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Communications and GAIL.
Diversification Opportunities for Reliance Communications and GAIL
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Reliance and GAIL is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Communications Limite and GAIL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAIL Limited and Reliance Communications 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 Communications Limited are associated (or correlated) with GAIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAIL Limited has no effect on the direction of Reliance Communications i.e., Reliance Communications and GAIL go up and down completely randomly.
Pair Corralation between Reliance Communications and GAIL
Assuming the 90 days trading horizon Reliance Communications is expected to generate 113.12 times less return on investment than GAIL. In addition to that, Reliance Communications is 1.26 times more volatile than GAIL Limited. It trades about 0.0 of its total potential returns per unit of risk. GAIL Limited is currently generating about 0.09 per unit of volatility. If you would invest 8,713 in GAIL Limited on August 28, 2024 and sell it today you would earn a total of 11,206 from holding GAIL Limited or generate 128.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reliance Communications Limite vs. GAIL Limited
Performance |
| Timeline |
| Reliance Communications |
| GAIL Limited |
Reliance Communications and GAIL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reliance Communications and GAIL
The main advantage of trading using opposite Reliance Communications and GAIL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Communications position performs unexpectedly, GAIL 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 GAIL will offset losses from the drop in GAIL's long position.The idea behind Reliance Communications Limited and GAIL 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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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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