Correlation Between Aarti Drugs and Piramal Enterprises

Can any of the company-specific risk be diversified away by investing in both Aarti Drugs and Piramal Enterprises 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 Piramal Enterprises 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 Piramal Enterprises Limited, you can compare the effects of market volatilities on Aarti Drugs and Piramal Enterprises 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 Piramal Enterprises. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aarti Drugs and Piramal Enterprises.

Diversification Opportunities for Aarti Drugs and Piramal Enterprises

0.85

Correlation Coefficient

Aarti Drugs  Piramal Enterprises

Very poor diversification

The 3 months correlation between Aarti and Piramal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Aarti Drugs Limited and Piramal Enterprises Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piramal Enterprises 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 Piramal Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piramal Enterprises has no effect on the direction of Aarti Drugs i.e., Aarti Drugs and Piramal Enterprises go up and down completely randomly.

Pair Corralation between Aarti Drugs and Piramal Enterprises

Assuming the 90 days trading horizon Aarti Drugs Limited is expected to under-perform the Piramal Enterprises. But the stock apears to be less risky and, when comparing its historical volatility, Aarti Drugs Limited is 1.09 times less risky than Piramal Enterprises. The stock trades about -0.15 of its potential returns per unit of risk. The Piramal Enterprises Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  109,055  in Piramal Enterprises Limited on December 25, 2024 and sell it today you would lose (6,770) from holding Piramal Enterprises Limited or give up 6.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Aarti Drugs Limited  vs.  Piramal Enterprises 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 inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Piramal Enterprises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Piramal Enterprises Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Piramal Enterprises is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aarti Drugs and Piramal Enterprises

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

The idea behind Aarti Drugs Limited and Piramal Enterprises 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.