Correlation Between Verizon Communications and Larsen Toubro

Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Larsen Toubro 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 Verizon Communications and Larsen Toubro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Verizon Communications and Larsen Toubro Limited, you can compare the effects of market volatilities on Verizon Communications and Larsen Toubro 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 Verizon Communications with a short position of Larsen Toubro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Larsen Toubro.

Diversification Opportunities for Verizon Communications and Larsen Toubro

0.39

Correlation Coefficient

Verizon Communications  Larsen Toubro

Weak diversification

The 3 months correlation between Verizon and Larsen is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Larsen Toubro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Larsen Toubro Limited and Verizon Communications 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 Verizon Communications are associated (or correlated) with Larsen Toubro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Larsen Toubro Limited has no effect on the direction of Verizon Communications i.e., Verizon Communications and Larsen Toubro go up and down completely randomly.

Pair Corralation between Verizon Communications and Larsen Toubro

Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Larsen Toubro. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.45 times less risky than Larsen Toubro. The stock trades about -0.06 of its potential returns per unit of risk. The Larsen Toubro Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,360  in Larsen Toubro Limited on September 14, 2024 and sell it today you would earn a total of  220.00  from holding Larsen Toubro Limited or generate 5.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Verizon Communications  vs.  Larsen Toubro Limited

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Verizon Communications is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Larsen Toubro Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Larsen Toubro is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Verizon Communications and Larsen Toubro

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

The idea behind Verizon Communications and Larsen Toubro 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.