Correlation Between Reliance Industries and Tech Mahindra

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

Diversification Opportunities for Reliance Industries and Tech Mahindra

0.85

Correlation Coefficient

Reliance Industries  Tech Mahindra

Very poor diversification

The 3 months correlation between Reliance and Tech is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Tech Mahindra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Mahindra 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 Tech Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Mahindra Limited has no effect on the direction of Reliance Industries i.e., Reliance Industries and Tech Mahindra go up and down completely randomly.

Pair Corralation between Reliance Industries and Tech Mahindra

Assuming the 90 days trading horizon Reliance Industries is expected to generate 1.05 times less return on investment than Tech Mahindra. But when comparing it to its historical volatility, Reliance Industries Limited is 1.13 times less risky than Tech Mahindra. It trades about 0.17 of its potential returns per unit of risk. Tech Mahindra Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  134,885  in Tech Mahindra Limited on April 20, 2025 and sell it today you would earn a total of  20,005  from holding Tech Mahindra Limited or generate 14.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Reliance Industries Limited  vs.  Tech Mahindra Limited

Reliance Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industries Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Reliance Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tech Mahindra Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Mahindra Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Tech Mahindra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Industries and Tech Mahindra

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

The idea behind Reliance Industries Limited and Tech Mahindra 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.