Correlation Between Dr Reddys and Catalyst Pharmaceuticals

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

Diversification Opportunities for Dr Reddys and Catalyst Pharmaceuticals

-0.59

Correlation Coefficient

Dr Reddys  Catalyst Pharmaceuticals

Excellent diversification

The 3 months correlation between RDY and Catalyst is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dr Reddys Laboratories and Catalyst Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalyst Pharmaceuticals 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 Catalyst Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalyst Pharmaceuticals has no effect on the direction of Dr Reddys i.e., Dr Reddys and Catalyst Pharmaceuticals go up and down completely randomly.

Pair Corralation between Dr Reddys and Catalyst Pharmaceuticals

Considering the 90-day investment horizon Dr Reddys Laboratories is expected to under-perform the Catalyst Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Dr Reddys Laboratories is 1.5 times less risky than Catalyst Pharmaceuticals. The stock trades about -0.16 of its potential returns per unit of risk. The Catalyst Pharmaceuticals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,974  in Catalyst Pharmaceuticals on September 2, 2024 and sell it today you would earn a total of  233.00  from holding Catalyst Pharmaceuticals or generate 11.8% 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.  Catalyst Pharmaceuticals

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 weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Catalyst Pharmaceuticals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Catalyst Pharmaceuticals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Catalyst Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dr Reddys and Catalyst Pharmaceuticals

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

The idea behind Dr Reddys Laboratories and Catalyst Pharmaceuticals 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.