Correlation Between Lakshmi Finance and Varun Beverages

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

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

Diversification Opportunities for Lakshmi Finance and Varun Beverages

0.27

Correlation Coefficient

Lakshmi Finance  Varun Beverages

Modest diversification

The 3 months correlation between Lakshmi and Varun is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Lakshmi Finance Industrial and Varun Beverages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varun Beverages and Lakshmi Finance 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 Lakshmi Finance Industrial are associated (or correlated) with Varun Beverages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varun Beverages has no effect on the direction of Lakshmi Finance i.e., Lakshmi Finance and Varun Beverages go up and down completely randomly.

Pair Corralation between Lakshmi Finance and Varun Beverages

Assuming the 90 days trading horizon Lakshmi Finance Industrial is expected to generate 1.19 times more return on investment than Varun Beverages. However, Lakshmi Finance is 1.19 times more volatile than Varun Beverages Limited. It trades about -0.09 of its potential returns per unit of risk. Varun Beverages Limited is currently generating about -0.11 per unit of risk. If you would invest  23,610  in Lakshmi Finance Industrial on October 25, 2024 and sell it today you would lose (2,939) from holding Lakshmi Finance Industrial or give up 12.45% of portfolio value over 90 days.

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

Lakshmi Finance Industrial  vs.  Varun Beverages Limited

Lakshmi Finance Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lakshmi Finance Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Varun Beverages

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Varun Beverages Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lakshmi Finance and Varun Beverages

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

The idea behind Lakshmi Finance Industrial and Varun Beverages 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.