Correlation Between KNR Constructions and Larsen Toubro

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

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

Diversification Opportunities for KNR Constructions and Larsen Toubro

0.65

Correlation Coefficient

KNR Constructions  Larsen Toubro

Poor diversification

The 3 months correlation between KNR and Larsen is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding KNR Constructions Limited 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 KNR Constructions 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 KNR Constructions Limited 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 KNR Constructions i.e., KNR Constructions and Larsen Toubro go up and down completely randomly.

Pair Corralation between KNR Constructions and Larsen Toubro

Assuming the 90 days trading horizon KNR Constructions Limited is expected to generate 2.18 times more return on investment than Larsen Toubro. However, KNR Constructions is 2.18 times more volatile than Larsen Toubro Limited. It trades about 0.0 of its potential returns per unit of risk. Larsen Toubro Limited is currently generating about -0.36 per unit of risk. If you would invest  33,880  in KNR Constructions Limited on October 10, 2024 and sell it today you would lose (315.00) from holding KNR Constructions Limited or give up 0.93% of portfolio value over 90 days.

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

KNR Constructions Limited  vs.  Larsen Toubro Limited

KNR Constructions

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KNR Constructions Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, KNR Constructions may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Larsen Toubro Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 3 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KNR Constructions and Larsen Toubro

The main advantage of trading using opposite KNR Constructions and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KNR Constructions 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 KNR Constructions Limited 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.