Correlation Between Kotak Mahindra and Zydus Wellness

Can any of the company-specific risk be diversified away by investing in both Kotak Mahindra and Zydus Wellness 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 Zydus Wellness 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 Zydus Wellness Limited, you can compare the effects of market volatilities on Kotak Mahindra and Zydus Wellness 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 Zydus Wellness. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kotak Mahindra and Zydus Wellness.

Diversification Opportunities for Kotak Mahindra and Zydus Wellness

0.32

Correlation Coefficient

Kotak Mahindra  Zydus Wellness

Weak diversification

The 3 months correlation between Kotak and Zydus is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Kotak Mahindra Bank and Zydus Wellness Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zydus Wellness 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 Zydus Wellness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zydus Wellness has no effect on the direction of Kotak Mahindra i.e., Kotak Mahindra and Zydus Wellness go up and down completely randomly.

Pair Corralation between Kotak Mahindra and Zydus Wellness

Assuming the 90 days trading horizon Kotak Mahindra Bank is expected to under-perform the Zydus Wellness. But the stock apears to be less risky and, when comparing its historical volatility, Kotak Mahindra Bank is 1.51 times less risky than Zydus Wellness. The stock trades about -0.12 of its potential returns per unit of risk. The Zydus Wellness Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  208,030  in Zydus Wellness Limited on September 21, 2024 and sell it today you would lose (10,960) from holding Zydus Wellness Limited or give up 5.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Kotak Mahindra Bank  vs.  Zydus Wellness Limited

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 latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kotak Mahindra and Zydus Wellness

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

The idea behind Kotak Mahindra Bank and Zydus Wellness 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.