Correlation Between Kotak Mahindra and Aarey Drugs

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

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

Diversification Opportunities for Kotak Mahindra and Aarey Drugs

0.72

Correlation Coefficient

Kotak Mahindra  Aarey Drugs

Poor diversification

The 3 months correlation between Kotak and Aarey is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Kotak Mahindra Bank and Aarey Drugs Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarey Drugs Pharmace and Kotak Mahindra 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 Kotak Mahindra Bank are associated (or correlated) with Aarey Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarey Drugs Pharmace has no effect on the direction of Kotak Mahindra i.e., Kotak Mahindra and Aarey Drugs go up and down completely randomly.

Pair Corralation between Kotak Mahindra and Aarey Drugs

Assuming the 90 days trading horizon Kotak Mahindra Bank is expected to under-perform the Aarey Drugs. But the stock apears to be less risky and, when comparing its historical volatility, Kotak Mahindra Bank is 2.38 times less risky than Aarey Drugs. The stock trades about -0.01 of its potential returns per unit of risk. The Aarey Drugs Pharmaceuticals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,815  in Aarey Drugs Pharmaceuticals on September 14, 2024 and sell it today you would earn a total of  3,185  from holding Aarey Drugs Pharmaceuticals or generate 113.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.74%
Values	Daily Returns

Kotak Mahindra Bank  vs.  Aarey Drugs Pharmaceuticals

Kotak Mahindra Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kotak Mahindra Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Kotak Mahindra is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Aarey Drugs Pharmace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aarey Drugs Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Kotak Mahindra and Aarey Drugs

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

The idea behind Kotak Mahindra Bank and Aarey Drugs Pharmaceuticals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.