Correlation Between ABB India and Azad Engineering

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

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

Diversification Opportunities for ABB India and Azad Engineering

0.89

Correlation Coefficient

ABB India  Azad Engineering

Very poor diversification

The 3 months correlation between ABB and Azad is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ABB India Limited and Azad Engineering Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azad Engineering and ABB 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 ABB India Limited are associated (or correlated) with Azad Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azad Engineering has no effect on the direction of ABB India i.e., ABB India and Azad Engineering go up and down completely randomly.

Pair Corralation between ABB India and Azad Engineering

Assuming the 90 days trading horizon ABB India Limited is expected to under-perform the Azad Engineering. But the stock apears to be less risky and, when comparing its historical volatility, ABB India Limited is 1.47 times less risky than Azad Engineering. The stock trades about -0.13 of its potential returns per unit of risk. The Azad Engineering Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  169,930  in Azad Engineering Limited on December 22, 2024 and sell it today you would lose (26,370) from holding Azad Engineering Limited or give up 15.52% of portfolio value over 90 days.

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

ABB India Limited  vs.  Azad Engineering Limited

ABB India Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABB India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Azad Engineering

Risk-Adjusted Performance

Very Weak

Over the last 90 days Azad Engineering Limited 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.

Pair Trading with ABB India and Azad Engineering

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

The idea behind ABB India Limited and Azad Engineering 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.