Correlation Between Eisai and Dr Reddys

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

By analyzing existing cross correlation between Eisai Co and Dr Reddys Laboratories, you can compare the effects of market volatilities on Eisai and Dr Reddys 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 Eisai with a short position of Dr Reddys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eisai and Dr Reddys.

Diversification Opportunities for Eisai and Dr Reddys

0.51

Correlation Coefficient

Eisai  Dr Reddys

Very weak diversification

The 3 months correlation between Eisai and RDDA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Eisai Co and Dr Reddys Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Reddys Laboratories and Eisai 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 Eisai Co are associated (or correlated) with Dr Reddys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Reddys Laboratories has no effect on the direction of Eisai i.e., Eisai and Dr Reddys go up and down completely randomly.

Pair Corralation between Eisai and Dr Reddys

Assuming the 90 days horizon Eisai Co is expected to under-perform the Dr Reddys. In addition to that, Eisai is 1.91 times more volatile than Dr Reddys Laboratories. It trades about -0.1 of its total potential returns per unit of risk. Dr Reddys Laboratories is currently generating about 0.22 per unit of volatility. If you would invest  1,330  in Dr Reddys Laboratories on September 22, 2024 and sell it today you would earn a total of  90.00  from holding Dr Reddys Laboratories or generate 6.77% return on investment over 90 days.

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

Eisai Co  vs.  Dr Reddys Laboratories

Eisai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eisai Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Dr Reddys Laboratories

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Reddys Laboratories are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Dr Reddys is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eisai and Dr Reddys

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

The idea behind Eisai Co and Dr Reddys Laboratories 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.