Correlation Between Larsen Toubro and Axita Cotton
Can any of the company-specific risk be diversified away by investing in both Larsen Toubro and Axita Cotton 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 Larsen Toubro and Axita Cotton into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Larsen Toubro Limited and Axita Cotton Limited, you can compare the effects of market volatilities on Larsen Toubro and Axita Cotton 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 Larsen Toubro with a short position of Axita Cotton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Larsen Toubro and Axita Cotton.
Diversification Opportunities for Larsen Toubro and Axita Cotton
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Larsen and Axita is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Axita Cotton Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axita Cotton Limited and Larsen Toubro 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 Larsen Toubro Limited are associated (or correlated) with Axita Cotton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axita Cotton Limited has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Axita Cotton go up and down completely randomly.
Pair Corralation between Larsen Toubro and Axita Cotton
Assuming the 90 days trading horizon Larsen Toubro Limited is expected to generate 0.85 times more return on investment than Axita Cotton. However, Larsen Toubro Limited is 1.18 times less risky than Axita Cotton. It trades about -0.11 of its potential returns per unit of risk. Axita Cotton Limited is currently generating about -0.22 per unit of risk. If you would invest 375,300 in Larsen Toubro Limited on September 26, 2024 and sell it today you would lose (11,325) from holding Larsen Toubro Limited or give up 3.02% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Larsen Toubro Limited vs. Axita Cotton Limited
Performance |
Timeline |
Larsen Toubro Limited |
Axita Cotton Limited |
Larsen Toubro and Axita Cotton Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Larsen Toubro and Axita Cotton
The main advantage of trading using opposite Larsen Toubro and Axita Cotton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Larsen Toubro position performs unexpectedly, Axita Cotton 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 Axita Cotton will offset losses from the drop in Axita Cotton's long position.Larsen Toubro vs. MRF Limited | Larsen Toubro vs. JSW Holdings Limited | Larsen Toubro vs. Maharashtra Scooters Limited | Larsen Toubro vs. Nalwa Sons Investments |
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Check out your portfolio center.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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