Correlation Between Reliance Industrial and ABB India

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

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

Diversification Opportunities for Reliance Industrial and ABB India

0.72

Correlation Coefficient

Reliance Industrial  ABB India

Poor diversification

The 3 months correlation between Reliance and ABB is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Industrial Infrastruc 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 Reliance Industrial 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 Reliance Industrial Infrastructure 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 Reliance Industrial i.e., Reliance Industrial and ABB India go up and down completely randomly.

Pair Corralation between Reliance Industrial and ABB India

Assuming the 90 days trading horizon Reliance Industrial Infrastructure is expected to generate 1.56 times more return on investment than ABB India. However, Reliance Industrial is 1.56 times more volatile than ABB India Limited. It trades about -0.01 of its potential returns per unit of risk. ABB India Limited is currently generating about -0.18 per unit of risk. If you would invest  118,285  in Reliance Industrial Infrastructure on October 10, 2024 and sell it today you would lose (6,600) from holding Reliance Industrial Infrastructure or give up 5.58% of portfolio value over 90 days.

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

Reliance Industrial Infrastruc  vs.  ABB India Limited

Reliance Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industrial Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Reliance Industrial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 Reliance Industrial and ABB India

The main advantage of trading using opposite Reliance Industrial and ABB India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Industrial 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 Reliance Industrial Infrastructure 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.