Correlation Between Dr Reddys and American Express

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

Diversification Opportunities for Dr Reddys and American Express

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between Dr Reddys and American is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dr Reddys Laboratories and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Dr Reddys i.e., Dr Reddys and American Express go up and down completely randomly.

Pair Corralation between Dr Reddys and American Express

Considering the 90-day investment horizon Dr Reddys is expected to generate 3.39 times less return on investment than American Express. But when comparing it to its historical volatility, Dr Reddys Laboratories is 1.28 times less risky than American Express. It trades about 0.02 of its potential returns per unit of risk. American Express is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,127  in American Express on April 4, 2022 and sell it today you would earn a total of  4,913  from holding American Express or generate 53.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Dr Reddys Laboratories  vs.  American Express

 Performance (%) 
      Timeline 
Dr Reddys Laboratories 
Dr Reddys Performance
0 of 100
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 fairly strong fundamental indicators, Dr Reddys is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.006
Payout Ratio
0.38
Last Split Factor
2:1
Forward Annual Dividend Rate
0.34
Dividend Date
2021-08-11
Ex Dividend Date
2021-07-08
Last Split Date
2006-09-07

Dr Reddys Price Channel

American Express 
American Performance
0 of 100
Over the last 90 days American Express 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 basic indicators remain very healthy which may send shares a bit higher in August 2022. The recent disarray may also be a sign of long period up-swing for the firm insiders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0148
Payout Ratio
0.19
Last Split Factor
10000:8753
Forward Annual Dividend Rate
2.08
Dividend Date
2022-08-10
Ex Dividend Date
2022-06-30
Last Split Date
2005-10-03

American Price Channel

Dr Reddys and American Express Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Dr Reddys and American Express

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

American Express

Pair trading matchups for American Express

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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