Correlation Between Gujarat Narmada and Laxmi Organic

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

By analyzing existing cross correlation between Gujarat Narmada Valley and Laxmi Organic Industries, you can compare the effects of market volatilities on Gujarat Narmada and Laxmi Organic 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 Gujarat Narmada with a short position of Laxmi Organic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gujarat Narmada and Laxmi Organic.

Diversification Opportunities for Gujarat Narmada and Laxmi Organic

0.84

Correlation Coefficient

Gujarat Narmada  Laxmi Organic

Very poor diversification

The 3 months correlation between Gujarat and Laxmi is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Narmada Valley and Laxmi Organic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laxmi Organic Industries and Gujarat Narmada 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 Gujarat Narmada Valley are associated (or correlated) with Laxmi Organic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laxmi Organic Industries has no effect on the direction of Gujarat Narmada i.e., Gujarat Narmada and Laxmi Organic go up and down completely randomly.

Pair Corralation between Gujarat Narmada and Laxmi Organic

Assuming the 90 days trading horizon Gujarat Narmada Valley is expected to under-perform the Laxmi Organic. But the stock apears to be less risky and, when comparing its historical volatility, Gujarat Narmada Valley is 1.12 times less risky than Laxmi Organic. The stock trades about -0.12 of its potential returns per unit of risk. The Laxmi Organic Industries is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  28,420  in Laxmi Organic Industries on September 30, 2024 and sell it today you would lose (4,005) from holding Laxmi Organic Industries or give up 14.09% of portfolio value over 90 days.

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

Gujarat Narmada Valley  vs.  Laxmi Organic Industries

Gujarat Narmada Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Narmada Valley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Laxmi Organic Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Laxmi Organic Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Gujarat Narmada and Laxmi Organic

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

The idea behind Gujarat Narmada Valley and Laxmi Organic Industries 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.