Correlation Between Big Yellow and Larsen Toubro

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

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

Diversification Opportunities for Big Yellow and Larsen Toubro

-0.37

Correlation Coefficient

Big Yellow  Larsen Toubro

Very good diversification

The 3 months correlation between Big and Larsen is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Big Yellow Group 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 Big Yellow 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 Big Yellow Group 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 Big Yellow i.e., Big Yellow and Larsen Toubro go up and down completely randomly.

Pair Corralation between Big Yellow and Larsen Toubro

Assuming the 90 days horizon Big Yellow Group is expected to under-perform the Larsen Toubro. But the stock apears to be less risky and, when comparing its historical volatility, Big Yellow Group is 2.45 times less risky than Larsen Toubro. The stock trades about -0.11 of its potential returns per unit of risk. The Larsen Toubro Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,140  in Larsen Toubro Limited on September 23, 2024 and sell it today you would earn a total of  20.00  from holding Larsen Toubro Limited or generate 0.48% return on investment over 90 days.

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

Big Yellow Group  vs.  Larsen Toubro Limited

Big Yellow Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Yellow Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Larsen Toubro Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Larsen Toubro is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Big Yellow and Larsen Toubro

The main advantage of trading using opposite Big Yellow and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Yellow 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 Big Yellow Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.