Correlation Between Reliance Industries and Tata Communications

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

Diversification Opportunities for Reliance Industries and Tata Communications

0.62

Correlation Coefficient

Reliance Industries  Tata Communications

Poor diversification

The 3 months correlation between Reliance and Tata is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Communications 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 Tata Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Communications has no effect on the direction of Reliance Industries i.e., Reliance Industries and Tata Communications go up and down completely randomly.

Pair Corralation between Reliance Industries and Tata Communications

Assuming the 90 days trading horizon Reliance Industries Limited is expected to generate 1.04 times more return on investment than Tata Communications. However, Reliance Industries is 1.04 times more volatile than Tata Communications Limited. It trades about 0.14 of its potential returns per unit of risk. Tata Communications Limited is currently generating about 0.05 per unit of risk. If you would invest  130,265  in Reliance Industries Limited on March 24, 2025 and sell it today you would earn a total of  16,355  from holding Reliance Industries Limited or generate 12.56% return on investment over 90 days.

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

Reliance Industries Limited  vs.  Tata Communications Limited

Reliance Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Reliance Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tata Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Communications Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Tata Communications is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Reliance Industries and Tata Communications

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

The idea behind Reliance Industries Limited and Tata Communications 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.