Correlation Between Larsen Toubro and NCC

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

Diversification Opportunities for Larsen Toubro and NCC

0.48

Correlation Coefficient

Larsen Toubro  NCC

Very weak diversification

The 3 months correlation between Larsen and NCC is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and NCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NCC 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 NCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NCC Limited has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and NCC go up and down completely randomly.

Pair Corralation between Larsen Toubro and NCC

Assuming the 90 days trading horizon Larsen Toubro Limited is expected to generate 0.73 times more return on investment than NCC. However, Larsen Toubro Limited is 1.36 times less risky than NCC. It trades about 0.08 of its potential returns per unit of risk. NCC Limited is currently generating about -0.05 per unit of risk. If you would invest  346,835  in Larsen Toubro Limited on October 5, 2024 and sell it today you would earn a total of  24,515  from holding Larsen Toubro Limited or generate 7.07% return on investment over 90 days.

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

Larsen Toubro Limited  vs.  NCC Limited

Larsen Toubro Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Larsen Toubro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NCC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NCC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Larsen Toubro and NCC

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

The idea behind Larsen Toubro Limited and NCC 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.