Correlation Between Larsen Toubro and Life InsuranceOf

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

Diversification Opportunities for Larsen Toubro and Life InsuranceOf

0.93

Correlation Coefficient

Larsen Toubro  Life InsuranceOf

Almost no diversification

The 3 months correlation between Larsen and Life is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life InsuranceOf 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 Life InsuranceOf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life InsuranceOf has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Life InsuranceOf go up and down completely randomly.

Pair Corralation between Larsen Toubro and Life InsuranceOf

Assuming the 90 days trading horizon Larsen Toubro Limited is expected to generate 1.12 times more return on investment than Life InsuranceOf. However, Larsen Toubro is 1.12 times more volatile than Life Insurance. It trades about -0.01 of its potential returns per unit of risk. Life Insurance is currently generating about -0.11 per unit of risk. If you would invest  357,895  in Larsen Toubro Limited on December 29, 2024 and sell it today you would lose (8,665) from holding Larsen Toubro Limited or give up 2.42% of portfolio value over 90 days.

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

Larsen Toubro Limited  vs.  Life Insurance

Larsen Toubro Limited

Risk-Adjusted Performance

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Life InsuranceOf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

Pair Trading with Larsen Toubro and Life InsuranceOf

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

The idea behind Larsen Toubro Limited and Life Insurance 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..