Correlation Between Reliance Industries and Sovereign Metals

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

Diversification Opportunities for Reliance Industries and Sovereign Metals

-0.49

Correlation Coefficient

Reliance Industries  Sovereign Metals

Very good diversification

The 3 months correlation between Reliance and Sovereign is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industries Limited and Sovereign Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals 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 Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of Reliance Industries i.e., Reliance Industries and Sovereign Metals go up and down completely randomly.

Pair Corralation between Reliance Industries and Sovereign Metals

Assuming the 90 days trading horizon Reliance Industries is expected to generate 1.35 times less return on investment than Sovereign Metals. But when comparing it to its historical volatility, Reliance Industries Limited is 2.12 times less risky than Sovereign Metals. It trades about 0.07 of its potential returns per unit of risk. Sovereign Metals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,200  in Sovereign Metals on March 25, 2025 and sell it today you would earn a total of  50.00  from holding Sovereign Metals or generate 1.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Reliance Industries Limited  vs.  Sovereign Metals

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 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Reliance Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sovereign Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sovereign Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Reliance Industries and Sovereign Metals

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

The idea behind Reliance Industries Limited and Sovereign Metals 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.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.