Correlation Between Dr Reddys and Alkermes Plc

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

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

Diversification Opportunities for Dr Reddys and Alkermes Plc

-0.43

Correlation Coefficient

Dr Reddys  Alkermes Plc

Very good diversification

The 3 months correlation between RDY and Alkermes is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Dr Reddys Laboratories and Alkermes Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkermes Plc and Dr Reddys 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 Dr Reddys Laboratories are associated (or correlated) with Alkermes Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkermes Plc has no effect on the direction of Dr Reddys i.e., Dr Reddys and Alkermes Plc go up and down completely randomly.

Pair Corralation between Dr Reddys and Alkermes Plc

Considering the 90-day investment horizon Dr Reddys is expected to generate 1.95 times less return on investment than Alkermes Plc. But when comparing it to its historical volatility, Dr Reddys Laboratories is 1.67 times less risky than Alkermes Plc. It trades about 0.04 of its potential returns per unit of risk. Alkermes Plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,418  in Alkermes Plc on September 14, 2024 and sell it today you would earn a total of  633.00  from holding Alkermes Plc or generate 26.18% return on investment over 90 days.

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

Dr Reddys Laboratories  vs.  Alkermes Plc

Dr Reddys Laboratories

Risk-Adjusted Performance

0 of 100

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.

Alkermes Plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alkermes Plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward-looking signals, Alkermes Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dr Reddys and Alkermes Plc

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

The idea behind Dr Reddys Laboratories and Alkermes Plc 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.