Correlation Between Reliance Industries and Thomas Scott

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

Diversification Opportunities for Reliance Industries and Thomas Scott

0.23

Correlation Coefficient

Reliance Industries  Thomas Scott

Modest diversification

The 3 months correlation between Reliance and Thomas is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Thomas Scott Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thomas Scott 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 Thomas Scott. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thomas Scott Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and Thomas Scott go up and down completely randomly.

Pair Corralation between Reliance Industries and Thomas Scott

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 4.35 times more return on investment than Thomas Scott. However, Reliance Industries is 4.35 times more volatile than Thomas Scott Limited. It trades about 0.05 of its potential returns per unit of risk. Thomas Scott Limited is currently generating about 0.17 per unit of risk. If you would invest  113,440  in Reliance Industries Limited on September 15, 2024 and sell it today you would earn a total of  13,845  from holding Reliance Industries Limited or generate 12.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.98%
Values	Daily Returns

Reliance Industries Limited  vs.  Thomas Scott 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 weak 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.

Thomas Scott Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thomas Scott Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Thomas Scott exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and Thomas Scott

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

The idea behind Reliance Industries Limited and Thomas Scott 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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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.