Correlation Between Aarti Drugs and Suzlon Energy

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

Diversification Opportunities for Aarti Drugs and Suzlon Energy

0.63

Correlation Coefficient

Aarti Drugs  Suzlon Energy

Poor diversification

The 3 months correlation between Aarti and Suzlon is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aarti Drugs Limited and Suzlon Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzlon Energy 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 Suzlon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzlon Energy Limited has no effect on the direction of Aarti Drugs i.e., Aarti Drugs and Suzlon Energy go up and down completely randomly.

Pair Corralation between Aarti Drugs and Suzlon Energy

Assuming the 90 days trading horizon Aarti Drugs Limited is expected to under-perform the Suzlon Energy. But the stock apears to be less risky and, when comparing its historical volatility, Aarti Drugs Limited is 1.16 times less risky than Suzlon Energy. The stock trades about -0.17 of its potential returns per unit of risk. The Suzlon Energy Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  6,434  in Suzlon Energy Limited on December 26, 2024 and sell it today you would lose (669.00) from holding Suzlon Energy Limited or give up 10.4% 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.  Suzlon Energy 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 unsteady 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.

Suzlon Energy Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Suzlon Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Aarti Drugs and Suzlon Energy

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

The idea behind Aarti Drugs Limited and Suzlon Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.