Correlation Between Abbott India and Vardhman Holdings

Can any of the company-specific risk be diversified away by investing in both Abbott India and Vardhman Holdings 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 Abbott India and Vardhman Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Abbott India Limited and Vardhman Holdings Limited, you can compare the effects of market volatilities on Abbott India and Vardhman Holdings 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 Abbott India with a short position of Vardhman Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Abbott India and Vardhman Holdings.

Diversification Opportunities for Abbott India and Vardhman Holdings

-0.59

Correlation Coefficient

Abbott India  Vardhman Holdings

Excellent diversification

The 3 months correlation between Abbott and Vardhman is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Abbott India Limited and Vardhman Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vardhman Holdings and Abbott India 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 Abbott India Limited are associated (or correlated) with Vardhman Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vardhman Holdings has no effect on the direction of Abbott India i.e., Abbott India and Vardhman Holdings go up and down completely randomly.

Pair Corralation between Abbott India and Vardhman Holdings

Assuming the 90 days trading horizon Abbott India Limited is expected to under-perform the Vardhman Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Abbott India Limited is 3.96 times less risky than Vardhman Holdings. The stock trades about -0.11 of its potential returns per unit of risk. The Vardhman Holdings Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  406,248  in Vardhman Holdings Limited on August 31, 2024 and sell it today you would earn a total of  77,372  from holding Vardhman Holdings Limited or generate 19.05% return on investment over 90 days.

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

Abbott India Limited  vs.  Vardhman Holdings Limited

Abbott India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abbott India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Vardhman Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vardhman Holdings Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Vardhman Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Abbott India and Vardhman Holdings

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

The idea behind Abbott India Limited and Vardhman Holdings 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.