Correlation Between Bosch and Aarti Drugs

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

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

Diversification Opportunities for Bosch and Aarti Drugs

-0.33

Correlation Coefficient

Bosch  Aarti Drugs

Very good diversification

The 3 months correlation between Bosch and Aarti is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Bosch Limited and Aarti Drugs Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarti Drugs Limited and Bosch 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 Bosch Limited are associated (or correlated) with Aarti Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarti Drugs Limited has no effect on the direction of Bosch i.e., Bosch and Aarti Drugs go up and down completely randomly.

Pair Corralation between Bosch and Aarti Drugs

Assuming the 90 days trading horizon Bosch Limited is expected to generate 1.74 times more return on investment than Aarti Drugs. However, Bosch is 1.74 times more volatile than Aarti Drugs Limited. It trades about 0.08 of its potential returns per unit of risk. Aarti Drugs Limited is currently generating about -0.38 per unit of risk. If you would invest  3,239,925  in Bosch Limited on September 3, 2024 and sell it today you would earn a total of  256,695  from holding Bosch Limited or generate 7.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Bosch Limited  vs.  Aarti Drugs Limited

Bosch Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bosch Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Bosch may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aarti Drugs Limited

Risk-Adjusted Performance

0 of 100

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 uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Bosch and Aarti Drugs

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

The idea behind Bosch Limited and Aarti Drugs 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.