Correlation Between MRF and Abbott India

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

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

Diversification Opportunities for MRF and Abbott India

0.45

Correlation Coefficient

MRF  Abbott India

Very weak diversification

The 3 months correlation between MRF and Abbott is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited 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 MRF 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 MRF Limited 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 MRF i.e., MRF and Abbott India go up and down completely randomly.

Pair Corralation between MRF and Abbott India

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.87 times more return on investment than Abbott India. However, MRF Limited is 1.15 times less risky than Abbott India. It trades about -0.12 of its potential returns per unit of risk. Abbott India Limited is currently generating about -0.11 per unit of risk. If you would invest  13,419,200  in MRF Limited on August 31, 2024 and sell it today you would lose (1,053,000) from holding MRF Limited or give up 7.85% of portfolio value over 90 days.

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

MRF Limited  vs.  Abbott India Limited

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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.

Pair Trading with MRF and Abbott India

The main advantage of trading using opposite MRF and Abbott India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MRF 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 MRF Limited 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.