Correlation Between Reliance Communications and Kotak Mahindra

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

Diversification Opportunities for Reliance Communications and Kotak Mahindra

RelianceKotakDiversified AwayRelianceKotakDiversified Away100%
-0.48
  Correlation Coefficient

Very good diversification

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

Pair Corralation between Reliance Communications and Kotak Mahindra

Assuming the 90 days trading horizon Reliance Communications Limited is expected to generate 2.78 times more return on investment than Kotak Mahindra. However, Reliance Communications is 2.78 times more volatile than Kotak Mahindra Bank. It trades about 0.14 of its potential returns per unit of risk. Kotak Mahindra Bank is currently generating about 0.09 per unit of risk. If you would invest  169.00  in Reliance Communications Limited on November 21, 2024 and sell it today you would earn a total of  16.00  from holding Reliance Communications Limited or generate 9.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Reliance Communications Limite  vs.  Kotak Mahindra Bank

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -20-10010
JavaScript chart by amCharts 3.21.15RCOM KOTAKBANK
       Timeline  
Reliance Communications 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Reliance Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Reliance Communications is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1.51.61.71.81.922.12.22.3
Kotak Mahindra Bank 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Kotak Mahindra Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Kotak Mahindra sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1,7501,8001,8501,9001,9502,000

Reliance Communications and Kotak Mahindra Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.81-3.6-2.39-1.19-0.01971.142.333.514.695.87 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15RCOM KOTAKBANK
       Returns  

Pair Trading with Reliance Communications and Kotak Mahindra

The main advantage of trading using opposite Reliance Communications and Kotak Mahindra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Communications position performs unexpectedly, Kotak Mahindra 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 Kotak Mahindra will offset losses from the drop in Kotak Mahindra's long position.
The idea behind Reliance Communications Limited and Kotak Mahindra Bank 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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