Correlation Between Aarti Drugs and EPL

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

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

Diversification Opportunities for Aarti Drugs and EPL

0.64

Correlation Coefficient

Aarti Drugs  EPL

Poor diversification

The 3 months correlation between Aarti and EPL is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Aarti Drugs Limited and EPL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPL Limited and Aarti Drugs 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 Aarti Drugs Limited are associated (or correlated) with EPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPL Limited has no effect on the direction of Aarti Drugs i.e., Aarti Drugs and EPL go up and down completely randomly.

Pair Corralation between Aarti Drugs and EPL

Assuming the 90 days trading horizon Aarti Drugs Limited is expected to under-perform the EPL. But the stock apears to be less risky and, when comparing its historical volatility, Aarti Drugs Limited is 1.27 times less risky than EPL. The stock trades about -0.17 of its potential returns per unit of risk. The EPL Limited is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  25,950  in EPL Limited on December 31, 2024 and sell it today you would lose (5,779) from holding EPL Limited or give up 22.27% of portfolio value over 90 days.

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

Aarti Drugs Limited  vs.  EPL Limited

Aarti Drugs Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aarti Drugs Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in May 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

EPL Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Aarti Drugs and EPL

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

The idea behind Aarti Drugs Limited and EPL 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.