Correlation Between Computer Age and LT Foods

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

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

Diversification Opportunities for Computer Age and LT Foods

0.07

Correlation Coefficient

Computer Age  LT Foods

Significant diversification

The 3 months correlation between Computer and LTFOODS is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Computer Age Management 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 Computer Age 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 Computer Age Management 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 Computer Age i.e., Computer Age and LT Foods go up and down completely randomly.

Pair Corralation between Computer Age and LT Foods

Assuming the 90 days trading horizon Computer Age Management is expected to generate 0.77 times more return on investment than LT Foods. However, Computer Age Management is 1.29 times less risky than LT Foods. It trades about 0.09 of its potential returns per unit of risk. LT Foods Limited is currently generating about 0.01 per unit of risk. If you would invest  436,528  in Computer Age Management on September 3, 2024 and sell it today you would earn a total of  56,312  from holding Computer Age Management or generate 12.9% return on investment over 90 days.

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

Computer Age Management  vs.  LT Foods Limited

Computer Age Management

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Age Management are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Computer Age unveiled solid returns over the last few months and may actually be approaching a breakup point.

LT Foods Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Computer Age and LT Foods

The main advantage of trading using opposite Computer Age and LT Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Computer Age 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 Computer Age Management 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.