Correlation Between BJs Wholesale and Larsen Toubro

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

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

Diversification Opportunities for BJs Wholesale and Larsen Toubro

0.88

Correlation Coefficient

BJs Wholesale  Larsen Toubro

Very poor diversification

The 3 months correlation between BJs and Larsen is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club 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 BJs Wholesale 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 BJs Wholesale Club 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 BJs Wholesale i.e., BJs Wholesale and Larsen Toubro go up and down completely randomly.

Pair Corralation between BJs Wholesale and Larsen Toubro

Assuming the 90 days horizon BJs Wholesale Club is expected to generate 0.73 times more return on investment than Larsen Toubro. However, BJs Wholesale Club is 1.37 times less risky than Larsen Toubro. It trades about -0.24 of its potential returns per unit of risk. Larsen Toubro Limited is currently generating about -0.23 per unit of risk. If you would invest  9,000  in BJs Wholesale Club on October 10, 2024 and sell it today you would lose (500.00) from holding BJs Wholesale Club or give up 5.56% of portfolio value over 90 days.

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

BJs Wholesale Club  vs.  Larsen Toubro Limited

BJs Wholesale Club

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BJs Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Larsen Toubro Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Larsen Toubro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BJs Wholesale and Larsen Toubro

The main advantage of trading using opposite BJs Wholesale and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Wholesale 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 BJs Wholesale Club 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.