Correlation Between Agro Phos and Larsen Toubro

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

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

Diversification Opportunities for Agro Phos and Larsen Toubro

-0.27

Correlation Coefficient

Agro Phos  Larsen Toubro

Very good diversification

The 3 months correlation between Agro and Larsen is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Agro Phos India 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 Agro Phos 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 Agro Phos India 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 Agro Phos i.e., Agro Phos and Larsen Toubro go up and down completely randomly.

Pair Corralation between Agro Phos and Larsen Toubro

Assuming the 90 days trading horizon Agro Phos is expected to generate 1.92 times less return on investment than Larsen Toubro. In addition to that, Agro Phos is 2.21 times more volatile than Larsen Toubro Limited. It trades about 0.02 of its total potential returns per unit of risk. Larsen Toubro Limited is currently generating about 0.08 per unit of volatility. If you would invest  202,378  in Larsen Toubro Limited on October 9, 2024 and sell it today you would earn a total of  157,942  from holding Larsen Toubro Limited or generate 78.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Agro Phos India  vs.  Larsen Toubro Limited

Agro Phos India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agro Phos India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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. In spite of rather sound basic indicators, Larsen Toubro is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Agro Phos and Larsen Toubro

The main advantage of trading using opposite Agro Phos and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agro Phos 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 Agro Phos India 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..