Correlation Between Larsen Toubro and NBCC

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

Diversification Opportunities for Larsen Toubro and NBCC

0.4

Correlation Coefficient

Larsen Toubro  NBCC

Very weak diversification

The 3 months correlation between Larsen and NBCC is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and NBCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBCC 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 NBCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBCC Limited has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and NBCC go up and down completely randomly.

Pair Corralation between Larsen Toubro and NBCC

Assuming the 90 days trading horizon Larsen Toubro Limited is expected to generate 0.54 times more return on investment than NBCC. However, Larsen Toubro Limited is 1.86 times less risky than NBCC. It trades about 0.0 of its potential returns per unit of risk. NBCC Limited is currently generating about -0.02 per unit of risk. If you would invest  358,560  in Larsen Toubro Limited on October 20, 2024 and sell it today you would lose (1,695) from holding Larsen Toubro Limited or give up 0.47% of portfolio value over 90 days.

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

Larsen Toubro Limited  vs.  NBCC 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

NBCC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NBCC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NBCC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Larsen Toubro and NBCC

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

The idea behind Larsen Toubro Limited and NBCC 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.