Correlation Between Diligent Media and ABB India

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

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

Diversification Opportunities for Diligent Media and ABB India

-0.34

Correlation Coefficient

Diligent Media  ABB India

Very good diversification

The 3 months correlation between Diligent and ABB is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Diligent Media and ABB India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB India Limited and Diligent Media 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 Diligent Media are associated (or correlated) with ABB India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB India Limited has no effect on the direction of Diligent Media i.e., Diligent Media and ABB India go up and down completely randomly.

Pair Corralation between Diligent Media and ABB India

Assuming the 90 days trading horizon Diligent Media is expected to generate 1.04 times less return on investment than ABB India. In addition to that, Diligent Media is 1.53 times more volatile than ABB India Limited. It trades about 0.06 of its total potential returns per unit of risk. ABB India Limited is currently generating about 0.09 per unit of volatility. If you would invest  290,722  in ABB India Limited on October 11, 2024 and sell it today you would earn a total of  374,978  from holding ABB India Limited or generate 128.98% return on investment over 90 days.

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

Diligent Media  vs.  ABB India Limited

Diligent Media

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diligent Media are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Diligent Media demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Diligent Media and ABB India

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

The idea behind Diligent Media and ABB 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.