Correlation Between Collegium Pharmaceutical and Dr Reddys

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

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

Diversification Opportunities for Collegium Pharmaceutical and Dr Reddys

0.64

Correlation Coefficient

Collegium Pharmaceutical  Dr Reddys

Poor diversification

The 3 months correlation between Collegium and RDY is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Collegium Pharmaceutical and Dr Reddys Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Reddys Laboratories and Collegium Pharmaceutical 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 Collegium Pharmaceutical are associated (or correlated) with Dr Reddys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Reddys Laboratories has no effect on the direction of Collegium Pharmaceutical i.e., Collegium Pharmaceutical and Dr Reddys go up and down completely randomly.

Pair Corralation between Collegium Pharmaceutical and Dr Reddys

Given the investment horizon of 90 days Collegium Pharmaceutical is expected to under-perform the Dr Reddys. In addition to that, Collegium Pharmaceutical is 1.52 times more volatile than Dr Reddys Laboratories. It trades about -0.08 of its total potential returns per unit of risk. Dr Reddys Laboratories is currently generating about -0.07 per unit of volatility. If you would invest  1,575  in Dr Reddys Laboratories on January 18, 2025 and sell it today you would lose (231.00) from holding Dr Reddys Laboratories or give up 14.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Collegium Pharmaceutical  vs.  Dr Reddys Laboratories

Collegium Pharmaceutical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Dr Reddys Laboratories

Risk-Adjusted Performance

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.

Pair Trading with Collegium Pharmaceutical and Dr Reddys

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

The idea behind Collegium Pharmaceutical and Dr Reddys Laboratories 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.