Correlation Between Prestige Brand and Dr Reddys

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

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

Diversification Opportunities for Prestige Brand and Dr Reddys

-0.61

Correlation Coefficient

Prestige Brand  Dr Reddys

Excellent diversification

The 3 months correlation between Prestige and RDY is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Brand Holdings 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 Prestige Brand 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 Prestige Brand Holdings 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 Prestige Brand i.e., Prestige Brand and Dr Reddys go up and down completely randomly.

Pair Corralation between Prestige Brand and Dr Reddys

Considering the 90-day investment horizon Prestige Brand Holdings is expected to generate 1.46 times more return on investment than Dr Reddys. However, Prestige Brand is 1.46 times more volatile than Dr Reddys Laboratories. It trades about 0.02 of its potential returns per unit of risk. Dr Reddys Laboratories is currently generating about -0.08 per unit of risk. If you would invest  8,477  in Prestige Brand Holdings on November 29, 2024 and sell it today you would earn a total of  135.00  from holding Prestige Brand Holdings or generate 1.59% return on investment over 90 days.

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

Prestige Brand Holdings  vs.  Dr Reddys Laboratories

Prestige Brand Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Brand Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Prestige Brand is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Dr Reddys Laboratories

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dr Reddys Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental 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 Prestige Brand and Dr Reddys

The main advantage of trading using opposite Prestige Brand and Dr Reddys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prestige Brand 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 Prestige Brand Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.