Correlation Between Salesforce and Larsen Toubro

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

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

Diversification Opportunities for Salesforce and Larsen Toubro

0.62

Correlation Coefficient

Salesforce  Larsen Toubro

Poor diversification

The 3 months correlation between Salesforce and Larsen is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce 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 Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Larsen Toubro go up and down completely randomly.

Pair Corralation between Salesforce and Larsen Toubro

Considering the 90-day investment horizon Salesforce is expected to generate 0.89 times more return on investment than Larsen Toubro. However, Salesforce is 1.12 times less risky than Larsen Toubro. It trades about -0.07 of its potential returns per unit of risk. Larsen Toubro Limited is currently generating about -0.09 per unit of risk. If you would invest  33,063  in Salesforce on December 1, 2024 and sell it today you would lose (3,278) from holding Salesforce or give up 9.91% of portfolio value over 90 days.

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

Salesforce  vs.  Larsen Toubro Limited

Salesforce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic 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

Very Weak

Over the last 90 days Larsen Toubro Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Salesforce and Larsen Toubro

The main advantage of trading using opposite Salesforce and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.