Correlation Between Reliance Industries and SBI Life

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

Diversification Opportunities for Reliance Industries and SBI Life

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Reliance and SBI is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and SBI Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Life Insurance 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 SBI Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Life Insurance has no effect on the direction of Reliance Industries i.e., Reliance Industries and SBI Life go up and down completely randomly.

Pair Corralation between Reliance Industries and SBI Life

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 7.43 times more return on investment than SBI Life. However, Reliance Industries is 7.43 times more volatile than SBI Life Insurance. It trades about 0.04 of its potential returns per unit of risk. SBI Life Insurance is currently generating about 0.02 per unit of risk. If you would invest  141,611  in Reliance Industries Limited on August 29, 2024 and sell it today you would lose (12,041) from holding Reliance Industries Limited or give up 8.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.51%
ValuesDaily Returns

Reliance Industries Limited  vs.  SBI Life Insurance

 Performance 
       Timeline  
Reliance Industries 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
SBI Life Insurance 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SBI Life Insurance 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 forward indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Reliance Industries and SBI Life Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Reliance Industries and SBI Life

The main advantage of trading using opposite Reliance Industries and SBI Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Industries position performs unexpectedly, SBI Life 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 SBI Life will offset losses from the drop in SBI Life's long position.
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The idea behind Reliance Industries Limited and SBI Life Insurance 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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