Correlation Between Life Insurance and Abbott India

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

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

Diversification Opportunities for Life Insurance and Abbott India

0.61

Correlation Coefficient

Life Insurance  Abbott India

Poor diversification

The 3 months correlation between Life and Abbott is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Life Insurance and Abbott India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott India Limited and Life Insurance 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 Life Insurance are associated (or correlated) with Abbott India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbott India Limited has no effect on the direction of Life Insurance i.e., Life Insurance and Abbott India go up and down completely randomly.

Pair Corralation between Life Insurance and Abbott India

Assuming the 90 days trading horizon Life Insurance is expected to under-perform the Abbott India. In addition to that, Life Insurance is 1.23 times more volatile than Abbott India Limited. It trades about -0.09 of its total potential returns per unit of risk. Abbott India Limited is currently generating about -0.05 per unit of volatility. If you would invest  2,966,410  in Abbott India Limited on September 5, 2024 and sell it today you would lose (122,305) from holding Abbott India Limited or give up 4.12% of portfolio value over 90 days.

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

Life Insurance  vs.  Abbott India Limited

Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 very healthy fundamental indicators, Abbott India is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Life Insurance and Abbott India

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

The idea behind Life Insurance and Abbott India 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.