Correlation Between Larsen Toubro and Innova Captab

Can any of the company-specific risk be diversified away by investing in both Larsen Toubro and Innova Captab 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 Innova Captab 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 Innova Captab Limited, you can compare the effects of market volatilities on Larsen Toubro and Innova Captab 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 Innova Captab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Larsen Toubro and Innova Captab.

Diversification Opportunities for Larsen Toubro and Innova Captab

0.68

Correlation Coefficient

Larsen Toubro  Innova Captab

Poor diversification

The 3 months correlation between Larsen and Innova is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Innova Captab Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innova Captab 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 Innova Captab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innova Captab Limited has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Innova Captab go up and down completely randomly.

Pair Corralation between Larsen Toubro and Innova Captab

Assuming the 90 days trading horizon Larsen Toubro is expected to generate 2.43 times less return on investment than Innova Captab. But when comparing it to its historical volatility, Larsen Toubro Limited is 1.69 times less risky than Innova Captab. It trades about 0.08 of its potential returns per unit of risk. Innova Captab Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  54,140  in Innova Captab Limited on September 28, 2024 and sell it today you would earn a total of  51,480  from holding Innova Captab Limited or generate 95.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	50.31%
Values	Daily Returns

Larsen Toubro Limited  vs.  Innova Captab Limited

Larsen Toubro Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Larsen Toubro Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Larsen Toubro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Innova Captab Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innova Captab Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Innova Captab exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Larsen Toubro and Innova Captab

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

The idea behind Larsen Toubro Limited and Innova Captab 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 Global Correlations module to find global opportunities by holding instruments from different markets.