Correlation Between Bajaj Healthcare and LT Foods

Can any of the company-specific risk be diversified away by investing in both Bajaj Healthcare and LT Foods 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 Bajaj Healthcare and LT Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Bajaj Healthcare and LT Foods

0.07

Correlation Coefficient

Bajaj Healthcare  LT Foods

Significant diversification

The 3 months correlation between Bajaj and LTFOODS is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Healthcare Limited and LT Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Foods Limited and Bajaj Healthcare 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 Bajaj Healthcare Limited are associated (or correlated) with LT Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Foods Limited has no effect on the direction of Bajaj Healthcare i.e., Bajaj Healthcare and LT Foods go up and down completely randomly.

Pair Corralation between Bajaj Healthcare and LT Foods

Assuming the 90 days trading horizon Bajaj Healthcare is expected to generate 1.29 times less return on investment than LT Foods. But when comparing it to its historical volatility, Bajaj Healthcare Limited is 1.24 times less risky than LT Foods. It trades about 0.03 of its potential returns per unit of risk. LT Foods Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  38,348  in LT Foods Limited on September 1, 2024 and sell it today you would earn a total of  1,362  from holding LT Foods Limited or generate 3.55% return on investment over 90 days.

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

Bajaj Healthcare Limited  vs.  LT Foods Limited

Bajaj Healthcare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Healthcare Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bajaj Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

LT Foods Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, LT Foods may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Bajaj Healthcare and LT Foods

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

The idea behind Bajaj Healthcare Limited and LT Foods 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.