Correlation Between ABB India and Diamond Power

Can any of the company-specific risk be diversified away by investing in both ABB India and Diamond Power 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 Diamond Power 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 Diamond Power Infrastructure, you can compare the effects of market volatilities on ABB India and Diamond Power 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 Diamond Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB India and Diamond Power.

Diversification Opportunities for ABB India and Diamond Power

-0.17

Correlation Coefficient

ABB India  Diamond Power

Good diversification

The 3 months correlation between ABB and Diamond is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding ABB India Limited and Diamond Power Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Power Infras 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 Diamond Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Power Infras has no effect on the direction of ABB India i.e., ABB India and Diamond Power go up and down completely randomly.

Pair Corralation between ABB India and Diamond Power

Assuming the 90 days trading horizon ABB India Limited is expected to generate 0.78 times more return on investment than Diamond Power. However, ABB India Limited is 1.28 times less risky than Diamond Power. It trades about -0.31 of its potential returns per unit of risk. Diamond Power Infrastructure is currently generating about -0.25 per unit of risk. If you would invest  758,795  in ABB India Limited on October 10, 2024 and sell it today you would lose (88,175) from holding ABB India Limited or give up 11.62% of portfolio value over 90 days.

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

ABB India Limited  vs.  Diamond Power Infrastructure

ABB India Limited

Risk-Adjusted Performance

0 of 100

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 uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Diamond Power Infras

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Power Infrastructure are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Diamond Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABB India and Diamond Power

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

The idea behind ABB India Limited and Diamond Power Infrastructure 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.