Correlation Between Can Fin and Larsen Toubro

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

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

Diversification Opportunities for Can Fin and Larsen Toubro

-0.27

Correlation Coefficient

Can Fin  Larsen Toubro

Very good diversification

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

Pair Corralation between Can Fin and Larsen Toubro

Assuming the 90 days trading horizon Can Fin Homes is expected to under-perform the Larsen Toubro. In addition to that, Can Fin is 1.05 times more volatile than Larsen Toubro Limited. It trades about -0.11 of its total potential returns per unit of risk. Larsen Toubro Limited is currently generating about 0.06 per unit of volatility. If you would invest  346,835  in Larsen Toubro Limited on October 7, 2024 and sell it today you would earn a total of  19,155  from holding Larsen Toubro Limited or generate 5.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Can Fin Homes  vs.  Larsen Toubro Limited

Can Fin Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Can Fin Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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. In spite of rather sound basic indicators, Larsen Toubro is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Can Fin and Larsen Toubro

The main advantage of trading using opposite Can Fin and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Can Fin 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 Can Fin Homes 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.