Correlation Between Zydus Wellness and BF Utilities

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

By analyzing existing cross correlation between Zydus Wellness Limited and BF Utilities Limited, you can compare the effects of market volatilities on Zydus Wellness and BF Utilities 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 Zydus Wellness with a short position of BF Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zydus Wellness and BF Utilities.

Diversification Opportunities for Zydus Wellness and BF Utilities

0.44

Correlation Coefficient

Zydus Wellness  BF Utilities

Very weak diversification

The 3 months correlation between Zydus and BFUTILITIE is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Zydus Wellness Limited and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited and Zydus Wellness 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 Zydus Wellness Limited are associated (or correlated) with BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of Zydus Wellness i.e., Zydus Wellness and BF Utilities go up and down completely randomly.

Pair Corralation between Zydus Wellness and BF Utilities

Assuming the 90 days trading horizon Zydus Wellness is expected to generate 3.47 times less return on investment than BF Utilities. But when comparing it to its historical volatility, Zydus Wellness Limited is 2.08 times less risky than BF Utilities. It trades about 0.04 of its potential returns per unit of risk. BF Utilities Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  35,720  in BF Utilities Limited on October 25, 2024 and sell it today you would earn a total of  48,885  from holding BF Utilities Limited or generate 136.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.39%
Values	Daily Returns

Zydus Wellness Limited  vs.  BF Utilities Limited

Zydus Wellness

Risk-Adjusted Performance

0 of 100

Very Weak

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

BF Utilities Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BF Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BF Utilities is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Zydus Wellness and BF Utilities

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

The idea behind Zydus Wellness Limited and BF Utilities 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.