Correlation Between AbbVie and Dr Reddys

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

By analyzing existing cross correlation between AbbVie Inc and Dr Reddys Laboratories, you can compare the effects of market volatilities on AbbVie and Dr Reddys 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 AbbVie with a short position of Dr Reddys. Check out your portfolio center. Please also check ongoing floating volatility patterns of AbbVie and Dr Reddys.

Diversification Opportunities for AbbVie and Dr Reddys

-0.82

Correlation Coefficient

AbbVie  Dr Reddys

Pay attention - limited upside

The 3 months correlation between AbbVie and RDY is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and Dr Reddys Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Reddys Laboratories and AbbVie 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 AbbVie Inc are associated (or correlated) with Dr Reddys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Reddys Laboratories has no effect on the direction of AbbVie i.e., AbbVie and Dr Reddys go up and down completely randomly.

Pair Corralation between AbbVie and Dr Reddys

Given the investment horizon of 90 days AbbVie Inc is expected to generate 0.9 times more return on investment than Dr Reddys. However, AbbVie Inc is 1.11 times less risky than Dr Reddys. It trades about 0.16 of its potential returns per unit of risk. Dr Reddys Laboratories is currently generating about -0.15 per unit of risk. If you would invest  17,753  in AbbVie Inc on December 26, 2024 and sell it today you would earn a total of  2,381  from holding AbbVie Inc or generate 13.41% return on investment over 90 days.

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

AbbVie Inc  vs.  Dr Reddys Laboratories

AbbVie Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, AbbVie showed solid returns over the last few months and may actually be approaching a breakup point.

Dr Reddys Laboratories

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dr Reddys Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with AbbVie and Dr Reddys

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

The idea behind AbbVie Inc and Dr Reddys Laboratories 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.