Correlation Between Tata Consultancy and Abbott India

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

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

Diversification Opportunities for Tata Consultancy and Abbott India

0.31

Correlation Coefficient

Tata Consultancy  Abbott India

Weak diversification

The 3 months correlation between Tata and Abbott is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services 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 Tata Consultancy 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 Tata Consultancy Services 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 Tata Consultancy i.e., Tata Consultancy and Abbott India go up and down completely randomly.

Pair Corralation between Tata Consultancy and Abbott India

Assuming the 90 days trading horizon Tata Consultancy Services is expected to generate 1.02 times more return on investment than Abbott India. However, Tata Consultancy is 1.02 times more volatile than Abbott India Limited. It trades about -0.02 of its potential returns per unit of risk. Abbott India Limited is currently generating about -0.02 per unit of risk. If you would invest  451,159  in Tata Consultancy Services on September 13, 2024 and sell it today you would lose (8,414) from holding Tata Consultancy Services or give up 1.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Tata Consultancy Services  vs.  Abbott India Limited

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Consultancy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the 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 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 Tata Consultancy and Abbott India

The main advantage of trading using opposite Tata Consultancy and Abbott India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Consultancy 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 Tata Consultancy Services 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.