Correlation Between Larsen Toubro and Syrma SGS

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

Diversification Opportunities for Larsen Toubro and Syrma SGS

0.65

Correlation Coefficient

Larsen Toubro  Syrma SGS

Poor diversification

The 3 months correlation between Larsen and Syrma is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Syrma SGS Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Syrma SGS Technology 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 Syrma SGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Syrma SGS Technology has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Syrma SGS go up and down completely randomly.

Pair Corralation between Larsen Toubro and Syrma SGS

Assuming the 90 days trading horizon Larsen Toubro is expected to generate 1.44 times less return on investment than Syrma SGS. But when comparing it to its historical volatility, Larsen Toubro Limited is 1.69 times less risky than Syrma SGS. It trades about 0.02 of its potential returns per unit of risk. Syrma SGS Technology is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  61,536  in Syrma SGS Technology on October 7, 2024 and sell it today you would earn a total of  1,224  from holding Syrma SGS Technology or generate 1.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Larsen Toubro Limited  vs.  Syrma SGS Technology

Larsen Toubro Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Syrma SGS Technology

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Syrma SGS Technology are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Syrma SGS displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Larsen Toubro and Syrma SGS

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

The idea behind Larsen Toubro Limited and Syrma SGS Technology 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.